MARKET WATCH: Oil prices rally; natural gas declines

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 27 -- Having ignored falling equity prices in the previous session, oil continued climbing Sept. 24 in the New York market, following a rally in the broader stock market triggered by the report of an unexpected jump in corporate spending.

“The news [of increased spending] sent equity markets higher around the globe, and the Standard & Poor’s 500 gained 2.1%. Energy stocks outperformed the broader market, with the oil service index…rising 2.5%,” said analysts in the Houston office of Raymond James & Associates Inc. Traders will likely watch consumer confidence reports and revised second quarter gross domestic product data released later this week “to gauge whether or not this rally has any legs,” they said.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The US equity markets printed another week of gains, with the S&P 500 up 2.05% for the week and 3.01% for the year. The end of the month is coming soon, and at current levels the S&P would have the best month of September since 1939.”

Data on new homes sales released at the end of last week showed “the second worse levels ever (the worse was in May) and 29% lower than in August 2009 or 59% than in August 2007.” Jakob said, “The macro data points on unemployment or housing have not shown any real signs of improving, only a bottoming at record low levels, and we do believe that the strength in the S&P…was more driven by the fear (or hope) that the US Federal Reserve will finance another asset bubble than by a belief that the US economy is strong enough to have the S&P targeting the price levels of 2006.”

Mixed economic signals have kept oil prices “trapped in the familiar $70-80/bbl band that has prevailed for more than a month now,” said analysts at KBC Energy Economics, a division KBC Advanced Technologies PLC in Surrey, UK. “Latest employment data from the US Labor Department pointed to sluggish recovery in jobs in the biggest OECD [Office of Economic Cooperation and Development] economy. In the Euro-zone, surveys of manufacturing such as the purchasing managers' index (PMI) have suggested that the economic recovery may be losing momentum, worryingly in Germany, which had been showing signs of stronger recovery,” they said.

Meanwhile, KBC analysts reported, the short-term oil market fundamentals remain overwhelmingly bearish. “Record high crude and product stocks in the US and last-in, first-out accounting mean refiners are likely to minimize purchases of crude oil until after the end of the year,” they said, adding, “So far the hurricane season has been a damp squib, despite meteorologists’ forecasts.”

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said “Given the high level of inventories and tepid pace of the recovery, we expect crude to remain under pressure and range bound around $75/bbl.”

Analysts at Barclays Capitol Commodities Research, however, reported, “Judging from the path of prices alone, one could get the impression the oil markets were still in a gentle slumber. Only sporadic jolts and the hint of menace such as recurrent fears of a double-dip recession have interfered with the tranquility, with the monthly value of key benchmarks on track to average in the mid-70s for the fifth consecutive month. The market may well still transition into the northern hemisphere winter napping and holding a comfort blanket, although there are enough positive developments in fundamentals to imply, in our view, that it is more a question of ‘when’ rather than ‘if’ the market wakes up and breaks to the upside. There is a possibility of a more abrupt move, but it would be due to a faster-than-expected dispersal of persisting macroeconomic uncertainty, rather than a further strengthening of fundamentals.”

Raymond James analysts said natural gas was the big loser Sept. 24 with prices falling more than 3% despite a reported decline in the gas rig count.

Natural gas prices “gave away most of the storm premium and closed 14.3¢ lower week-over-week,” Sharma said.

Energy prices
The November contract for benchmark US light, sweet crudes jumped $1.31 to $76.49/bbl Sept. 24 on the New York Mercantile Exchange. The December contract gained $1.11 to $77.65/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.56 to $74.99/bbl.

“The WTI-Brent spread narrowed by 91¢/bbl as WTI played a bit of catch up, while the near-dated contango structure in crude also flattened as the nearby prices shifted higher,” said analyst Leon Westgate at Standard New York Securities Inc., part of the Standard Bank Group. WTI registered a gain of $1.57/bbl for the week.

Heating oil for October delivery increased 1.61¢ to $2.13/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month gained 2.97¢ to $1.95/gal.

The October natural gas contract fell 13.8¢ to $3.88/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., a price update was unavailable.

In London, the November IPE contract for North Sea Brent crude increased 76¢ to $78.87/bbl. Gas oil for October gained $5.50 to $682.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 73¢ to $75.01/bbl. So far this year, OPEC’s basket price has averaged $75.23/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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