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MARKET WATCH: Energy prices climb in uncertain market

Sam Fletcher
Senior Writer

HOUSTON, June 25 -- Energy prices generally inched higher June 24 amid reports that Royal Dutch Shell PLC had restored production from its deepwater Bonga oil field off Nigeria.

Shell declared force majeure for June and July on exports from its 220,000 b/d Bonga oil field following the June 19 attack by gunmen in speedboats against a floating production, storage, and offloading vessel in the field 120 km off Nigeria (OGJ Online, June 23, 2008). "It is as yet unclear whether full capacity had been achieved," said analysts at Barclays Capital Inc., London.

Olivier Jakob at Petromatrix, Zug, Switzerland, said there are still concerns about "the levels of production from Chevron [Corps's] Escravos stream [in Nigeria] following a pipeline attack at the end of last week. Strike threats on Chevron are also still a risk factor, although we understand that the unions have been invited to meet the federal government [June 27] in a further attempt at finding a solution."

In a June 24 report, the Conference Board in New York said US consumer confidence fell this month to the lowest level since 1992. Moreover, consumers' view of the US economy over the next 6 months is the lowest since 1967 when the board began its surveys. That report again weakened the US dollar against the euro.

In other news, MasterCard Inc. reported motor-fuel purchases in the US fell for the ninth consecutive week as a result of high prices at the pump. At Goldman Sachs Group Inc., analyst Arjun N. Murti said the benchmark US crude may average $118/bbl this year, increasing to an average $140/bbl in 2009. He's the same analyst who earlier said crude could hit $200/bbl within 20 years.

At Raymond James & Associates Inc. in Houston, analysts said, "A common thought we hear is that oil could go to $150/bbl or $100/bbl, a coin toss either way. Looking at natural gas, forecasts are calling for milder weather over the next 2 weeks.

US inventories
The Energy Information Administration reported June 25 commercial US inventories of benchmark US crudes increased for the first time in 6 weeks, up 800,000 bbl to 301.8 million bbl in the week ended June 20. The consensus on Wall Street was for another decline, with a 1.1 million bbl draw. Gasoline stocks dipped by 100,000 bbl to 208.8 million bbl during the same period, exactly as expected. Distillate fuel inventories increased 2.8 million bbl to 119.4 million bbl, exceeding Wall Street's expectations of a 1.8 million bbl build. Propane and propylene inventories increased by 1.2 million bbl to 39.7 million bbl in the same week

Imports of crude into the US declined by 8,000 b/d to 10.3 million b/d in that period. The input of crude into US refineries fell 181,000 b/d to 15.3 million b/d with units operating at 88.6% of capacity. Gasoline production rose to 9.1 million b/d; distillate fuel production increased to 4.6 million b/d.

Analyst Eitan Bernstein said Jan. 25 his firm, Friedman, Billings, Ramsey & Co. Inc., Arlington, Va., is reducing by 50% on average its earlier estimates of refiners' earnings per share in the second quarter of this year. With that and other downward revisions for the second half of this year, he said, FBR has reduced its 2008 earnings estimate by 40% overall.

Those revisions are due to "the weak second quarter refining margin environment and expectations for margins to stay soft as we move through summer and into the fall shoulder season. Many of the factors that negatively impacted first quarter earnings have extended into the second quarter and will likely contribute to another quarter of disappointing results," Bernstein said.

He said, "US refiners produce a variety of products; however, gasoline typically represents 50% of yields, and with domestic inventories currently above comparable year-ago levels, but demand lower, we expect that refining margins and stocks will remain under pressure through the remainder of the year."

Earlier this week, Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, lowered second quarter earnings estimates for the refiners he follows

Energy prices
The August contract for benchmark US light, sweet crudes inched up 26¢ to $137/bbl June 24 on the New York Mercantile Exchange. The September contract gained 38¢ to $137.52/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 40¢ to $136.40/bbl. The July heating oil contract rose 1.72¢ to $3.81/gal on NYMEX. The July contract for reformulated blend stock for oxygenate blending (RBOB) increased 0.84¢ to $3.46/gal.

The July natural gas contract dropped 19.2¢ to $13.01/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., advanced 5¢ to $12.99/MMbtu.

In London, the August IPE contract for North Sea Brent crude was up 55¢ to $136.46/bbl. Gas oil for July, however, lost $4.75 to $1,239.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes gained 55¢ to $131.25/bbl.

Contact Sam Fletcher at samf@ogjonline.com


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