MARKET WATCH: Oil, natural gas prices slump with consumer confidence

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 30 -- The forefront crude contract fell 3% June 29, its biggest drop since June 4, while the new front-month natural gas unit tumbled 3.9% on the New York market.

“Slumping consumer confidence in the US and China's slowest growth rate in 5 months sent investors running for the hills (and the dollar), with commodities and equities on the losing end,” said analysts in the Houston office of Raymond James & Associates Inc. “Energy stocks unsurprisingly underperformed the market.”

However, BP PLC’s corporate shares outperformed the market and were expected to continue to climb June 30 on market speculation of a potential takeover of that company by ExxonMobil Corp. “We don't completely rule out such a scenario,” said Raymond James analysts. “But we see two big hurdles: 1. antitrust concerns due to refining concentration, and 2. the challenge of immunizing the buyer from BP's legal liabilities [related to the Macondo blowout in the deepwater Gulf of Mexico and other mishaps].”

They reported the US Department of Justice sent letters to BP, Anadarko Petroleum Corp., a partner in the Macondo well; Transocean Ltd., which drilled the well; and Halliburton Co., which was doing the cementing program at the time of the blowout, seeking 30 days notice before distributions, sales, restructuring, or acquisitions to be sure the companies don't deplete assets that could be used to satisfy a judgment against them. The letters also requested monthly financial statements, credit and loan agreements, and assessments of financial condition.

Meanwhile, the National Hurricane Center in Miami upgraded Tropical Storm Alex to a Category 1 hurricane. The storm is expected to make landfall in South Texas or northern Mexico by early July 1, possibly having strengthened to Category 2. The center said Alex is the first June hurricane to form in the Atlantic since 1995, the same year that Hurricane Katrina and Hurricane Rita devastated the Gulf Coast in late August and early September, respectively.

In other news, the private Consumer Conference Board said its June Consumer Confidence index tumbled 10 points to 52.9 due to public uncertainty about the economy.

US inventories
The Energy Information Administration reported June 30 commercial US inventories of crude dropped 2 million bbl to 363.1 million bbl in the week ended June 25, twice as much as the Wall Street consensus. Gasoline stocks gained 500,000 bbl to 218.1 million bbl vs. expectations of a 400,000 bbl draw. Distillate fuel inventories climbed 2.5 million barrels to 159.4 million bbl, exceeding Wall Street’s outlook for a 1 million bbl gain.

The American Petroleum Institute earlier reported a drop of 3.4 million bbl of crude stocks to 359 million bbl. Gasoline inventories fell 908,000 bbl to 220.3 million bbl, API said, while distillate stocks shot up 3.98 million bbl to 158.7 million bbl.

Imports of crude into the US fell 631,000 b/d to 9.5 million b/d last week, EIA said. In the 4 weeks through June 25, crude imports averaged 9.7 million b/d, 543,000 b/d above the comparable period a year ago. The input of crude into US refineries dropped 98,000 b/d to 15.1 million b/d, however, with units operating at 88.4% of capacity last week. Nonetheless, EIA reported gasoline production increased to 9.4 million b/d, and distillate fuel production increased to 4.4 million b/d.

Energy prices
The August contract for benchmark US light, sweet crudes continued its decline, dropping $2.31 to $75.94/bbl June 30 on the New York Mercantile Exchange. The August contract fell $2.33 to $76.57/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $2.31 to $75.94/bbl. Heating oil for July delivery lost 7.2¢ to $2.02 gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 6.56¢ to $2.07/gal.

The new front-month August contract for natural gas fell 18.5¢ to $4.55/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 16¢ to $4.68/MMbtu.

In London, the August IPE contract for North Sea Brent lost $2.15 to $75.44/bbl. Gas oil for July fell $19.75 to $650.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down $2.11 to $72.69/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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