MARKET WATCH: Gas futures price falls 7% in New York market

Sam Fletcher
Senior Writer

HOUSTON, Aug. 7 -- The front-month natural gas contract in the New York market plummeted more than 7% Aug. 6 after the Energy Information Administration reported the injection of 66 bcf of gas into US underground storage in the week ended July 31.

That injection boosted the amount of working gas in storage to 3.09 tcf, up 580 bcf from the year-ago level and 496 bcf above the 5-year average (OGJ Online, Aug. 6, 2009). Energy prices generally declined as the dollar strengthened against the euro.

EIA’s report on gas storage eclipsed earlier reports Enterprise Products Partners LP shut its 42-in. Gulf of Mexico pipeline due to an explosion at a compressor plant (OGJ Online, Aug 6, 2009).

Oil was down in early trading Aug. 7 after closing flat in the previous session. Olivier Jakob at Petromatrix in Zug, Switzerland, said, “West Texas Intermediate has been trading a very tight range for the last 3 days, and this re-enforces the view that a volatility outbreak is in preparation.”

He said. “Technically, WTI is in a total standstill between $70-72/bbl. It is in pure congestion mode, but this never lasts for long and we have to be prepared for a volatility outbreak. The direction of which, however, we can not predict at this stage.”

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, “Crude oil prices have recently been linked strongly to the performance in Standard & Poor's 500 stock index, but this correlation is not stable. It seems plausible to us that as investors become more comfortable with an increasingly positive economic outlook, oil will start trading more on its own set of fundamentals, which we believe are set to remain relatively weak into 2010, and not those of the broader economy.”

As for natural gas, he said, “Weather trends are providing mixed signals: The Pacific Decadal Oscillation looks like it has flipped into a cold phase. If it has, we may have some cold winters ahead despite an underlying trend of global warming. But this winter could be warmed-up by a developing El Niño, and this summer is still seeing a significant build in natural gas storage and little evidence of looming hurricane activity that are keeping downward pressure on prices.”

FTC issues rule
Meanwhile, the Federal Trade Commission issued a final rule prohibiting fraud or deceit in wholesale petroleum markets, and omissions of material information that are likely to distort petroleum markets, with possible fines as much as $1 million/day. Proponents claim the measure will target such practices as keeping tankers offshore and impeding imports, closing refineries for maintenance when prices or demand are high, or exporting crude at a low price to manipulate US inventories.

Commissioner William E. Kovacic, who voted against it, said the rule was flawed because it does not require that an alleged violation be intentional and either actually or likely distort markets (OGJ Online, Aug. 6, 2009).

The new FTC rule “would have a greater impact on correctly reporting stocks in Cushing[, Okla., storage] or reporting cash deals than on speculative flows so we would not be overly concerned about these new rules for the general trading and positions in futures,” Jakob said.

In other news, the Labor Department reported Aug. 7 US payrolls dropped 247,000 in July compared with a 443,000 loss in June. The US unemployment rate declined for the first time since April 2008, down to 9.4% from 9.5% previously. Analysts hailed it as the clearest sign yet that the recession is easing.

Energy prices
The September contract for benchmark US light, sweet crudes traded as high as $72.42/bbl Aug. 6 on the New York Mercantile Exchange before closing at $71.94/bbl, down 3¢ for the day. The September contract lost 6¢ to $73.87/bbl. On the US spot market, WTI at Cushing was down 3¢ to $71.94/bbl. Heating oil for September delivery dropped 2.02¢ to $1.94/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month increased 0.95¢ to $2.06/gal.

The September contract for natural gas fell 29.9¢ to $3.74/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 7¢, to an average $3.74/MMbtu.

In London, the September IPE contract for North Sea Brent briefly reached a high for this year at $76/bbl in intraday trading. It closed at $74.83/bbl, down 68¢ for the day. Gas oil for August gained $4 to $611/tonne

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 47¢ to $72.99/bbl on Aug. 6.

Contact Sam Fletcher at samf@ogjonline.com

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