Crude Spikes on Consumer Demand, West Mulls More Sanctions Against Russia

Edited by Vani Rao

Natural gas prices may rise on predictions of cold winds sweeping across the central US

Crude Oil

WTI crude gained 2.22%, or $2.21 a barrel, during the week ended March 28, 2014. The light, sweet crude prices rose for second consecutive week due to the political standoff between Russia and the West as well as improved US economic data.

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On Friday, March 28, 2014, US crude oil prices improved 39 cents, or 0.39%, to end the week at $101.67 a barrel on the New York Mercantile Exchange (NYMEX) as the US witnessed a promising rise in consumer spending for February, dodging the chilling winter climate.

The US Department of Commerce stated on Friday, March 28, 2014, that the consumer spending for February improved 0.3%, above January gains of 0.2% and in-line with the Bloomberg median estimate of 0.3%. However, the Thomson Reuters/University of Michigan’s consumer sentiment index in March fell to 80.0 from 81.6 in February.

Also during the week, the US Commerce Department revised upwards the US GDP growth to 2.6% for the last quarter of 2013 from the initial forecast of 2.4%. The median GDP estimate of economists surveyed by Bloomberg stood at 2.7%. It also revised upwards the personal spending growth for the last quarter from 2.6% to 3.3%, the strongest increase since late 2010.

The other major data releases for February also showed promising signs of economic revival. Orders from motor vehicles and parts gained 3.6% and demand for durable goods increased 2.2%, above the median estimates of 0.8%. The US Labor Department reported that initial jobless claims for the week ended March 21, 2014, fell by 10,000 to 311,000. The Bloomberg median estimates of initial jobless claims expected first-time jobless beneficiaries to rise by 4,000.

According to a release by the US Energy Information Administration (EIA), crude inventory at Cushing, Oklahoma, fell by 1.33 million barrels to 28.5 million barrels, a two-year low and the eighth consecutive week of decline.

In a major relief to soaring oil prices, Iraq has been able to pump crude out of the West Qurna-2 oil field and would be able to supply four million barrels per day (bpd) by the end of the year. However, the West is considering more sanctions against Russia’s vital oil and gas industry for its involvement in the internal affairs of Ukraine and annexing Crimea. This in turn is likely to offset the additional supply from Iraq and US shale productions.

In the week ahead, all eyes will be on Friday’s US non-farm payrolls data for the month ending March 31, 2014. According to Bloomberg, US non-farm payrolls would improve by 200,000, indicating strengthening of the labor market.

On Friday, March 21, 2014, the European standard Brent crude rose 0.22%, or 24 cents a barrel, to end the week at $108.07 a barrel. The ICE Futures Exchange trade crude gained 1.08%, or $1.15 a barrel, during the week. The spread between the Brent and WTI crude narrowed to $6.4 a barrel.

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The WTI and Brent crude were last trading at $101.38 and $107.86 a barrel, respectively, at the time of reporting.

Natural Gas

US natural gas prices fell on Friday, March 21, 2014, as investors cashed out weekly gains. Natural gas prices for May delivery fell 1.17%, or 5.3 cents, to settle the week at $4.485 per million British Thermal Units (BTU).

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During the week ended March 28, 2014, natural gas prices hit a weekly high of 4.570 per million BTU, the highest in the last two weeks, before settling at $4.485 per million BTU.

Natural gas price surged on Thursday, March 27, as the EIA reported that natural gas stockpiles for the week ended March 21, 2014, declined by 57 billion cubic feet against Bloomberg analysts’ expectations of a 54 billion cubic feet decline. US total natural gas stockpiles stood at 896 billion cubic feet, below the five-year average of 1.822 trillion cubic feet, and the lowest since 2003, for this period in 2014.

Natural gas prices might rise during the next week as weather-forecasting models expect cold wind to sweep across the central and north-eastern parts of the US before the onset of milder climate in the upcoming week.

However, a spike in natural gas prices is likely to be short lived as the prices will be determined by the demand for natural gas that is fading with the onset of milder spring season.

US Natural Gas was last trading at $4.448 per million BTU at the time of reporting.

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