MARKET WATCH: Crude oil extends losing streak

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 7 -- The front-month crude oil contract continued its decline July 6 for the seventh consecutive session in the New York market after reversing earlier gains of the day amid continued worries about the US economic recovery.

The August crude contract reversed earlier gains of the day on a slower-than-expected expansion of the service industries, which cover almost 90% of the US economy, said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “The ISM Non-Manufacturing index fell to 53.8 in June from 55.4 in May, while economists were expecting the index would fall to 55. Prices had appreciated during early trading on the dollar’s 0.6% decline against the euro,” Sharma said.

The front-month natural gas contract climbed as high as $4.90/MMbtu in the July 6 session before trading away most of that gain on a revised weather forecast “that trimmed earlier expectations of the much above-normal temperatures in the eastern US over the next 10-15 days,” Sharma said. “Weather remains the wild card, although concerns about the growing onshore supply continue to limit any sharp appreciation of prices.”

Meanwhile, the New York equity market increased for the first time in eight sessions, with the Dow Jones Industrial Average up 0.6% and energy indices trading in-line. “Spain's successful bond offering contributed to yesterday's rise in the market,” said analysts in the Houston office of Raymond James & Associates Inc. “Not much economic data coming out today to drive, scare, [or] cheer up the (dare we say bipolar?) market.” The Energy Information Administration’s weekly petroleum inventories report—“which will most likely be impacted by lower imports due to Hurricane Alex”—will be delayed until July 8 because of the holiday.

With political focus still on the Macondo oil spill, Pritchard Capital Partners said, “Coming into question recently is the 27,000-plus wells in the Gulf of Mexico and over 2,600 platforms that are not producing hydrocarbons and what is being done to make sure they are not leaking and not a potential cause for environmental issues. Our thought is that once Macondo is contained and clean-up efforts are fully under way, that the scrutiny will come on plugging and abandonment work that is continuously put off. While investors are still looking for long-term negatives in the space and how to value, this is a positive for several service companies that is being overlooked.”

Energy prices
The August contract for benchmark US sweet, light crudes traded as high as $73.86/bbl July 6 on the New York Mercantile Exchange before closing at $71.98, down 16¢ for the day. The September contract slipped by 9¢ to $72.51/bbl. The October contract was unchanged, but subsequent months posted gains with prices still in contango.

On the US spot market, West Texas Intermediate at Cushing, Okla., was down 16¢ to $71.98/bbl. Heating oil for August delivery inched up 0.17¢, leaving its price essentially unchanged at a rounded $1.92/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined by 0.64¢ to $1.97/gal.

The August natural gas contract slipped 0.5¢ to $4.68/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 15.5¢ to $4.84/MMbtu.

In London, the August IPE contract for North Sea Brent crude was down 2¢ to $71.45/bbl. Gas oil for July jumped by $15.25 to $623.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 68¢ to $69.73/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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