MARKET WATCH: Crude oil, natural gas prices slip lower

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 17 -- Energy prices slipped lower Aug. 16 with the front-month crude price down for the fifth consecutive session in the New York market, and the natural gas contract declining 2.4%.

“Oil prices continue to shadow the broader market and ended the day relatively flat while gas prices took another healthy step downward toward the $4/Mcf mark after forecasts for a cooler summer kept fingers on the sell button,” said analysts in the Houston office of Raymond James & Associates Inc.

“Oil markets were indeed in a standstill,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “West Texas Intermediate remains oversold to the exogenous correlations by about $1.60/bbl; hence, if the Standard & Poor’s 500 index is able to rebound it should bring some support to WTI. The problem, however, is that the S&P is still in a pattern of lower highs and lower lows, and technical traders have been busy for the past few days discussing the merits of the ‘Hindenburg Omen,’ a controversial [and complicated] technical indicator that is believed to precede a stock market crash and that apparently started to appear [on Aug. 12].” Although the omen, named for the ill-fated German dirigible that crashed and burned in 1937, “is not a part of our toolkit,” Jakob said, “it is adding to the negative sentiment provided by the worse than expected macroeconomic data.”

Jakob said, “The gasoline crack continues to slide as the summer-to-winter backwardation continues to erode. With a 3-2-1 refinery margin of $5.20/bbl for the October contracts, we should expect to see lower refinery runs starting to be planned in the US and that translates into lower crude oil demand.” Meanwhile, he noted the WTI premium to North Sea Brent crude is disappearing, with October WTI is trading at par to Brent.

In other news, Iran is expected to start fueling its Bushehr nuclear plant early next week “or possibly already this weekend,” Jakob said. “The US has not been very voiceful against the latest start-up date but ex-US Ambassador John Bolton has been making the sound bites that this then leaves a few days for Israel if it wants to bomb the plant before it becomes operational and more difficult to attack.”

Iran’s defense minister has warned Israel’s existence “will be in danger” if it attacks the Iranian nuclear plant.

Jakob noted, “Russia announced last week that it had installed batteries of its most sophisticated anti-aircraft missiles in Abkhazia. This is surely not to protect itself from the few helicopters of Georgia. Georgia is, however, a potential northern route to Iran.”

Based on possible escalation of Middle East hostilities, Jakob said, “We would carry an additional risk premium time-specific to the end of this week, and if we continue not to like either the state of the economy or the state of the oil fundamentals, we would have some reduced short exposure until next week and the confirmation that the plant has started to be fueled.”

Energy prices
The September contract for benchmark US sweet, light crudes declined 15¢ to $75.24/bbl Aug. 16 on the New York Mercantile Exchange. The October contract lost 17¢ to $75.60/bbl. On the US spot market, WTI at Cushing, Okla., was down 15¢ to $75.24/bbl. Heating oil for September delivery dipped by 0.68¢ to $1.99/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 1.53¢ to $1.92/gal.

The September natural gas contract dropped 10¢ to $4.23/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 1¢ to $4.35/MMbtu.

In London, the September IPE contract for North Sea Brent crude lost 26¢ to $74.85/bbl. Gas oil for September fell $3.75 to $633/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes declined 37¢ to $72.27/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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