MARKET WATCH: Crude prices follow stock market up

Paula Dittrick
Senior Staff Writer

HOUSTON, July 31 – US crude oil futures prices rebounded July 30 as stock prices broadly moved higher on Wall Street. Separately, natural gas prices rose after the US Energy Information Administration reported a gain in underground inventories.

Oil prices on the New York futures market rose above $66/bbl, almost completely recovering after taking a dive during the July 29 trading session in what has been a volatile week for crude oil prices.

On July 30, the US Labor Department reported a smaller-than-expected increase in new jobless claims, which analysts said boosted the equity market.

EIA reported a weekly gas storage injection of 71 bcf, slightly below what analysts had expected. Working gas in storage increased to 3.023 tcf as of July 24, according to EIA’s Weekly Natural Gas Storage Report.

The inventory report helped boost gas prices, partially because more moderate levels of injection have been persistent. Analysts also attributed rising gas prices to strength in the equity market.

Working gas inventories are 571 bcf higher than year-ago levels and 478 bcf above the 5-year average level. It’s the first time in July that working gas stocks exceeded 3 tcf since the weekly series began in 1994. Previously, Aug. 31, 2007, was the earliest that working gas stocks topped 3 tcf.

Production down
EIA estimates Lower 48 monthly gas production declined 0.2% in April. Meanwhile, production gains from new wells in Louisiana, particularly those in the Haynesville shale play, boosted Louisiana gas production by 3% during March, Deutsche Bank said in a July 31 research note.

Regional US gas production gains are apt to keep gas prices from any significant near-term increase, analysts say.

Raymond James analyst J. Marshall Adkins said producers have reduced supply by possibly over 1 bcfd through voluntary shut-ins, completion delays, and pipeline-gathering constraints.

Adkins attributed recent tightness in the gas market to extreme electricity demand in the southern US, which has a large number of gas-fired power plants. Still, he expects gas prices will fall below $3/Mcf in coming months.

“While the market tightened over the past few months, it won’t be sufficient to save summer gas prices,” Adkins said. “Even if we assume current shut-ins continue, we will still need to shut in an additional 250-plus bcf to keep from overfilling storage.”

The low US rig count also appears to be unlikely to keep gas prices from dropping in coming months, he said.

Energy prices
The September contract for benchmark US sweet, light crudes rose $3.59 to $66.94/bbl July 30 on the NYMEX. The October contract for sweet, light crudes also rose, gaining $3.69 to $68.92/bbl.

On the US spot market, WTI at Cushing, Okla., was up 59¢ to $66.94/bbl. Heating oil for August delivery increased 9.74¢ to $1.77/gal on NYMEX. Reformulated blendstock for oxygenate blending (RBOB) for the same month was up 13.6¢ to $1.99/gal.

The September natural gas contract rose 19.5¢ to $3.74/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., declined by 2.5¢ to $3.34/MMbtu.

In London, the September IPE contract for North Sea Brent crude gained $3.58 to $70.11/bbl. August gas oil rose $21.75 to $564.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 61¢ to $66.42/bbl on July 30.

Contact Paula Dittrick at paulad@ogjonline.com.

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