MARKET WATCH: Crude price drops; natural gas advances

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 27 -- The price of crude fell 1.4% on Apr. 26, ending a 2-day rally on the New York market, as the US dollar strengthened and stalled negotiations on the resolution of Greece’s debt weakened the euro.

“With Cushing[, Okla., crude] inventories approaching record levels, US crude fell even further into contango and continues to be priced below the less-desirable (from a refining prospective) [North Sea] Brent crude due to forecasts for increased European industrial demand,” said analysts in the Houston office of Raymond James & Associates Inc.

Natural gas, however, continued to advance on evidence of a decline in gas drilling—the first in 17 weeks—in last week’s US rig count report by Baker Hughes Inc. Both crude and gas prices were down in early trading Apr. 27.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The contango on West Texas Intermediate continues to widen and is now at levels that will make it harder and harder for passive investors in commodity indices to ignore. Marketers of indices that would potentially suffer from investment outflows in times of contango have been sending research notes calling the return of the wide contango a temporary thing. But combine the wide WTI contango, the reputation run on The Goldman Sachs Group Inc., and the expiry of the public comment period for the Commodity Futures Trading Commission’s proposed energy limits, and this still translates into a passive investment outflow risk for the second half of the year.”

Jakob said, “The widening of the contango on WTI is also contributing to a widening of the gasoline crack, but the reformulated blend stock for oxygenate blending (RBOB) differential to WTI is also helped by the necessity to preserve a certain import economics to Europe as WTI moves to a greater discount to Brent.”

Energy prices
The June contract for benchmark US sweet, light crudes traded as high as $85.63/bbl before closing at $84.20/bbl Apr. 26 on the New York Mercantile Exchange, down 92¢ for the day. The July contract fell 57¢ to $86.47/bbl. On the US spot market, WTI at Cushing was down 22¢ as it again got in step with the front month futures contract’s closing at $84.20/bbl. Heating oil for May delivery declined 1.34¢ to $2.24/gal on NYMEX. RBOB for the same month decreased 1.22¢ to $2.34/gal.

The May natural gas contract inched up 0.5¢ to $4.26/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 11.5¢ to $4.19/MMbtu.

In London, the June IPE contract for Brent crude dropped 42¢ to $86.83/bbl. Gas oil for May increased $1 to $719.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes escalated by 90¢ to $83.91/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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