MARKET WATCH: Crude oil price falls but natural gas rallies

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 2 -- Crude oil prices continued to tumble July 1 in the New York market amid more signs of a slowdown in the economic recovery, but natural gas was up following a smaller-than-expected injection into US underground storage.

“For the week, crude has slipped nearly 8%, now sitting below $73/bbl, while natural gas is looking to end the week flattish after receiving a boost on the heels of yesterday's bullish injection number,” said analysts in the Houston office of Raymond James & Associates Inc.

The Energy Information Administration reported the injection of 60 bcf of gas into US underground storage in the week ended June 25, below a consensus of 65 bcf. That raised working gas in storage to 2.68 tcf, down 27 bcf from a year ago and 287 bcf above the 5-year average (OGJ Online, July 1, 2010).

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “West Texas Intermediate closed [July 1] right at the fair-value on the exogenous correlations, and we will have a much more neutral approach to the flat price of WTI on the basis of exogenous inputs until they draw further into one direction.”

He said, “Crude oil and gold were under severe flat price pressure, but we can not conclude that there is a global deleveraging from commodity indices because some of the other commodities managed to actually make some strong gains.”

As for offshore oil and gas production, Jakob said, “With the bad publicity brought by Deepwater Horizon, producers [in the US Gulf of Mexico] will not take a chance this year and will close down production on a precautionary basis as soon as the name ‘storm’ appears somewhere. This will be a capping factor on builds both for natural gas and crude oil. With some temporary shutdowns both at the Mexican crude oil export ports and the US crude oil import ports, we could also see some lower supplies reported in the statistics next week.”

He acknowledged, “The delayed imports will reappear later but in the meantime could provide face-value statistics more on the supportive side, and given that preliminary indications are also showing the possibility of a further small draw in Cushing, Okla., we will have to take a positive approach to next week’s statistics.”

Energy corporate stocks traded modestly lower through the week, with the oil service and exploration and production indices down 5% and 7%, respectively. However, Raymond James analysts reported BP PLC shares registered the first weekly price gain since the oil spill crisis began, up 9% week-to-date vs. a 14-year low closing on June 25. “Lots of market speculation to go around—some of it in the wishful thinking category, like a buyout by ExxonMobil Corp., and some of more immediate relevance, like the divestiture of assets in Argentina. The Financial Times indicated today that BP's stake in Pan American Energy, an Argentinean oil producer, could be sold for up to $9 billion, with Chinese majors reportedly interested. This alone would almost cover BP's planned $10 billion asset sale program, suggesting that the company would likely upsize that target,” said Raymond James analysts.

“Speculation that a relief well success could be announced imminently has also been heating up, even though both the company and the Coast Guard are sticking to a timeline several weeks away,” they said. “On the political front, the Interior Department is set to release a new drilling moratorium policy within days, since the prior one was ruled too broad by a federal court. Whether the new policy will materially differ from the prior one is debatable, so expect litigation to continue.”

In other news, the US Department of Labor reported July 2 employers eliminated 125,000 jobs in June, the biggest drop since October. The downturn was led by the termination of 225,000 temporary census jobs. Although the private sector added 83,000 jobs—its sixth month of consecutive gains—it couldn’t offset the loss of temporary government employment.

Nonetheless, US unemployment declined to the lowest level since July 2009 at 9.5%, down from 9.7% previously. But that was because more than 650,000 unemployed people have given up looking for work. Those no longer seeking employment are not counted as unemployed.

Energy prices
The August contract for benchmark US light, sweet crudes dropped $2.68 to $72.95/bbl July 1 on the New York Mercantile Exchange. The August contract lost $2.70 to $73.46/bbl. On the US spot market, WTI at Cushing was down $2.68 to $72.95/bbl. Heating oil for August delivery fell 7.58¢ to $1.94/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 6.28¢ to $2/gal.

The August natural gas contract jumped by 23.8¢ to $4.85/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 1¢ to $4.55/MMbtu.

In London, the August IPE contract for North Sea Brent crude was down $2.67 to $72.34/bbl. Gas oil for July fell $28 to $616.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped $2.03 to $70.48/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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