Sam Fletcher
Senior Writer
HOUSTON, July 18 -- In a third day of large losses, the front-month crude futures contract tumbled below $130/bbl July 17 as natural gas prices also continued to fall in the New York market.
The natural gas contract dropped below $12/MMbtu after the Energy Information Administration reported a surprisingly large injection of 104 bcf of gas into US underground storage in the week ended July 11. That pushed total working gas in storage to 2.3 tcf, just 361 bcf lower than in the same period a year ago and only 49 bcf below the 5-year average. Analysts said the fall in gas prices scared some investors out of the energy markets. August gas futures have dropped $3.15, or 23%, from a July 2 high of $13.69/MMbtu.
Adam Sieminski, chief energy economist, Deutsche Bank, Washington, said, "With an easing in some of the forces that drove prices higher over the past year now under way, we remain confident in our forecast for $125-135/bbl oil over the remainder of 2008 and hold to our $120/bbl average estimate for 2009." The latest gas injection "suggests that electric utility gas consumption is lagging due to the economic slowdown, more normal weather patterns, and the impact of rising natural gas prices. With NYMEX futures prices now well under $12/MMbtu across the entire upcoming winter, some of that demand may be won back."
However, the large sell-off "has some traders thinking that crude has fallen too fast, too soon," said analysts in the Houston office of Raymond James & Associates Inc. Indeed, crude prices in the US and Europe rebounded to more than $130/bbl in early trading July 18.
Analysts at Pritchard Capital Partners LLC, New Orleans, observed, "The rebound hardly recovers the staggering losses of the last 3 days, but again a new retail diesel pricing record was established yesterday and many states have pump prices in excess of $5/gal for diesel." They said, "The recent decline in crude and spot prices hasn't reached the consumer sector yet. Retailers are still trying to recoup rising costs that have been robbing them of cash flow all year. Supplies are chocked full and oil companies, unable to move barrels through the bulk markets because credit constraints have taken some volume out of the market, are now trying to shift those sales."
Concerns about demand destruction as well as signs US-Iran relations are slightly improving "continue to hover over the market," said Pritchard Capital. The UK newspaper The Guardian reported US officials may announce a diplomatic interest section—usually the first step to a permanent embassy—in Tehran in less than a month.
Olivier Jakob at Petromatrix, Zug, Switzerland, said, "While Iran has a long history of deception, the presence of the US undersecretary of state at the [scheduled weekend] meeting is a significant change of input that can not be ignored, and there is some speculation that other heads of diplomacy could also join the Geneva party."
In other news, Brazilian offshore oil workers said they will end a 5-day strike as promised, but they may call a new, nationwide strike against Petroleo Brasileiro SA (Petrobras) next month. Petrobras claims the strike and a sympathy work slowdown by refinery workers did not affect oil production levels. However, union officials say Petrobras did not have enough contingency workers to maintain normal production levels.
Energy prices
The August contract for benchmark US fell $5.31 to $129.29/bbl July 17 on the New York Mercantile Exchange. The September contract dropped $5.14 to $130.18/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $5.31 to $129.29/bbl. Heating oil for August declined 9.71¢ to $3.74/gal on NYMEX. The August contract for reformulated blend stock for oxygenate blending (RBOB) lost 11.61¢ to $3.16/gal.
Natural gas for the same month tumbled 86.1¢ to $10.54/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., retreated 6.5¢ to $11.15/MMbtu.
In London, the new front-month September IPE contract for North Sea Brent crude lost $4.74 to $131.07/bbl. August gas oil increased $11.75 to $1,250/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes dropped $2.06 to $131.03/bbl on July 17.
Contact Sam Fletcher at [email protected]
