MARKET WATCH: Energy prices slip lower; unemployment at 26-year high

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 4 -- Energy prices continued slipping lower Sept. 3, with crude down further in early trading Sept. 4 in the New York market as the Department of Labor reported unemployment in the US reached a 26-year high in August.

Natural gas dropped to the lowest closing price for a front-month contract since March 2002 after the Energy Information Administration reported the injection of 65 bcf of gas into US underground storage in the week ended Aug. 28. That raised the working gas in storage to more than 3.32 tcf, which is 489 bcf more than in the same period last year and 501 bcf above the 5-year average (OGJ Online, Sept. 3, 2009).

The US unemployment rate rose to 9.7% last month with the loss of 216,000 jobs—fewer than expected—following elimination of 276,000 jobs in July. However, officials said the “underemployment rate” among part-time workers seeking full-time jobs and those who have given up looking for work—hit a record 16.8%, indicating a major economic recovery will likely be delayed until 2010.

Officials earlier reported US initial claims for unemployment benefits were down 4,000 to 570,000 in the latest week, compared with expectations of 564,000 new claims.

Oil continued to range trade around $70/bbl Sept. 3 and closed “relatively flat,” said analysts in the Houston office of Raymond James & Associates Inc.

Crude prices have “been in a total standstill for the last 2 days, and it would take a strongly worse-than-expected nonfarm payrolls [report] to provoke a renewed downward trend in front of a long weekend,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “The trading gear-shift is likely to be put on neutral today while we check the weather conditions for the holiday weekend.” The US Labor Day holiday on Sept. 7 marks the end of the summer driving season.

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC., said, “We believe the rally in oil prices has lost steam as equity markets have corrected lower, the US dollar has stopped weakening, and investors become increasingly concerned towards a possible tightening in the treatment on position limits as currently supervised by New York Mercantile Exchange. We expect this trend will continue to cap oil price advances.”

Raymond James analysts reported, “Natural gas continued its downward march towards $2/Mcf, dropping 7.6%…. Gas in storage still remains on pace to break all-time highs, and we continue to believe that gas prices only have room to fall in the near-future,” they said.

In New Orleans, analysts at Pritchard Capital Partners LLC said, “Natural gas has fallen 27% in the past 15 trading days. Too much supply and a lack of industrial demand are the primary reasons for the decline. The current acceleration in downtrend could be due to two trade unwinds: (1) the unwind and shrinking of the US Natural Gas Fund ETF [exchange traded fund], buying UNG shares and selling natural gas contracts, and (2) the unwind of the convergence trade—traders that were short oil and long natural gas are closing out an unsuccessful trade.”

They advised, “If you look at a long-term natural gas chart over the past 5 years, natural gas has made a year low in September and then rallied into the winter. This is true for every year except 2005, and that exception was due to Katrina. There are many reasons not to like natural gas, but turning bearish on natural gas in September with little idea of what type of winter lies ahead and after an 80% decline from the peak and a 27% decline in the last 15 trading days seems a little late.”

Sieminski said, “We are closely watching the winter temperature implications of the El Nino signals, which have continued to rise. El Ninos are often associated with warmer temperatures in the Northeast US. After a mild-demand summer, continuing robust production, and no hurricanes in the Gulf [of Mexico] so far this year, natural gas prices seemed destined to remain under pressure.”

Meanwhile, Raymond James analysts said, “Energy stocks outperformed the broader market yesterday, led by the oil field service names (with the Oil Service Index up 1.8%) while exploration and production companies traded flat.”

Energy prices
The October contract for benchmark US light, sweet crudes traded at $67.66-69.40/bbl Sept. 3 before closing at $67.96/bbl, down just 9¢ for the day on NYMEX. The November contract declined 13¢ to $68.55/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 9¢ to $67.96/bbl. Heating oil for October delivery lost 1.55¢ to $1.74/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month dropped 1.58¢ to $1.79/gal.

The October natural gas contract fell 20.7¢ to $2.51/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 22.5¢ to $2.05/MMbtu.

In London, the October IPE contract for North Sea Brent crude declined 54¢ to $67.12/bbl. Gas oil for September dropped $7 to $548.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 1¢ to $66.65/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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