MARKET WATCH: Oil futures price drops to 2-month low

Sam Fletcher
Senior Writer

HOUSTON, May 30 -- The front-month crude contract fell to the lowest price level in more than 2 months as the New York market reopened May 29 after the 3-day Memorial Day weekend.

The end of a 2-day strike by Nigerian oil workers on May 26 and the successful inauguration May 29 of newly elected Nigerian President Umaru Yar'Adua contributed to that decline. "Crude oil has given back…the specific risk premium associated with the Nigerian presidential inauguration," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, in a May 30 report. "But news this morning of more pipeline disruption [of] Bonny Light [Nigeria's benchmark crude] is proving that the Nigerian country risk can not be totally taken off."

In a separate report May 30, analysts in the Houston office of Raymond James & Associates Inc. said, "Nigerian villagers raided the Bomu Manifold, a gathering point for crude flowing to the Bonny export terminal. Production was halted and lost output was put at around 150,000 bbl of crude, but Royal Dutch Shell PLC has begun working to restore the lost output."

Jakob said, "The situation in Nigeria remains problematic. While we could expect to see some hostage release soon, the current position of the main militant groups to the new government is still not clear. In the meantime local communities are still able to bring some disruptions."

The US summer driving season kicked off over the Memorial Day holiday with near-record gasoline prices at the pump. However, traders will have to wait until May 31 to learn how much crude was refined into gasoline last week, as the holiday delayed by a day the US Energy Information Administration's weekly report. Raymond James cautioned: "Expect to see some downward pressure in the broad market possibly spill over into the energy markets due to recent actions in China."

Separately, China's Ministry of Finance announced on May 24 a rise in its securities stamp tax, a levy on securities transactions, from 0.1% to 0.3%. "This measure is aimed at tempering the Chinese economy and, in particular, the extremely strong gains exhibited by the Chinese stock market over the past year," Raymond James reported. In anticipation of that increase, the Chinese market fell more than 6% during trading May 23. "This move by the Chinese government is the latest in a string of tightening measures and most likely not the last. In the US, the shares of Chinese-based companies reacted to this news during late afternoon trading May 29," Raymond James analysts said.

Energy prices
The July contract for benchmark US light, sweet crudes traded at $62.54-65.24/bbl before closing at $63.15/bbl, down by $2.05 May 29 on the New York Mercantile Exchange. The August contract lost $2.14 to $64.38/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.60 to $63.16/bbl. Heating oil for June delivery dropped 7.01¢ to $1.87/gal on NYMEX. The June contract for reformulated blend stock for oxygenate blending (RBOB) registered an unusually large drop, down 10.58¢ to $2.30/gal.

"Technically, the momentum has shifted downward, with the 5-day averages moving from a support to a resistance on crude oil," Jakob said. "NYMEX products expire tomorrow and the inverted structure of gasoline is a negative input to the continuous charts. For now the July RBOB contract is testing the lower band of the $2.20-2.43/gal summer range."

The June natural gas contract fell 4.9¢ to $7.59/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 5.5¢ to $7.54/MMbtu. "After closing down for seven trading days straight, natural gas [futures price was] up about 10¢/Mcf this morning," Raymond James analysts reported May 30. Weather through May 31, they said, "is showing an inflection point, as the majority of the degree days are now comprised of cooling degree days vs. heating degree days. Although the weather forecast is milder on a year-over-year basis, the data illustrates that the summer heat has arrived."

In London, the July IPE contract for North Sea Brent crude also was volatile, trading at $67.59-70.24/bbl before closing at $68.13/bbl, down $1.59 for the day. The June gas oil contract dipped by 75¢ to $597/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes declined 67¢ to $65.37/bbl on May 29.

Contact Sam Fletcher at samf@ogjonline.com.

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