MARKET WATCH: Crude oil price climbs; gas price declines

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 11 -- Oil prices increased for the third consecutive day June 10, with the front-month crude contract moving above $75/bbl in New York as the commodity market rose led by energy stocks and the dollar fell against major currencies.

Natural gas was down slightly after the Energy Information Administration reported a bigger-than-expected injection of 99 bcf into US underground storage in the week ended June 4 (OGJ Online, June 10, 2010).

“China’s report that its exports rose by 48.5% year-over-year in May and positive economic data from Japan and Australia further bolstered the economic recovery story,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “Crude has slowly crept into the $75/bbl range as news of the European debt crisis has given way to a more positive outlook. As many structural issues within the euro region linger, we anticipate that crude will have limited price appreciation beyond current levels unless the risk capital flows back into the market as it was prior to the European debt crisis.”

As for the gas market, Sharma said, “Despite a bearish storage number, prices showed considerable resilience as the weather is expected to warm up over next few days and will be much hotter-than-normal in the Midwest and east next week.”

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, “We continue to believe that weather and improved demand fundamentals will support [natural gas] pricing.” He added, “Although tax collections from deepwater oil production should temper the severity of new regulations [in the wake of the Macondo blowout], it is possible that new safety costs could add $5-10/bbl to the long-run equilibrium price of oil.”

The “burning question” about natural gas “is whether there is fundamental support for the recent bounce from oversold conditions for it to become a sustainable rally,” said analysts at FBR Capital Markets & Co. in Arlington, Va. “On the crude oil front, parsing through the impact of macro events has left energy investors exacerbated, but valuation has become too compelling to ignore. Recently, we have seen a pickup in investor interest with regard to operational catalysts.”

FBR analysts said, however, they have “no idea” how the deepwater situation in the Gulf of Mexico may turn out. “If BP PLC is able to show in the near future that the leak is under control, then the revaluation to the upside could be extreme. As such, maybe options are a better way to play (not invest in) this event.”

Energy prices
The July contract for benchmark US light, sweet crudes gained $1.10 to $75.48/bbl June 10 on the New York Mercantile Exchange. The August contract advanced $1.24 to $76.68/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.10 to $75.48/bbl. Heating oil for July delivery increased 2.32¢ to $2.03/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased $3.08¢ to $2.07/gal.

The July natural gas contract lost 3¢ to $4.65/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 7¢ to $4.69/MMbtu.

In London, the July IPE contract for North Sea Brent crude was up $1.02 to $75.29/bbl. Gas oil for June was unchanged at $639.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained $1.13 to $72.21/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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