MARKET WATCH: Crude oil, natural gas price ended last week flat

Crude oil and natural gas prices were flat in the New York market Aug. 26 as Hurricane Irene proved weaker than the potential East Coast disaster meteorologists were predicting.

Some midstream distributors shut down coastal terminals while refiners reduced production rates along the eastern seaboard, but storm damage to energy infrastructure was minimal.

“As the storm progressed, the overall effects diminished. By the time Irene hit the major storage hubs in the Upper East, the category 1 hurricane was downgraded to a tropical depression. With relatively few shut-downs and very few plants running at reduced rates, the storm's impact was far less than anticipated,” said analysts in the Houston office of Raymond James & Associates Inc. By Aug. 28, several closed terminals were back online.

“No major damage was reported to any refining infrastructure, though some refineries are still at reduced rates,” Raymond James analysts reported. “Power outages will remain a problem for the region, but once that is resolved we expect the majority of terminals, pipelines, and refineries to resume normal operation.”

Along with Irene, Federal Reserve Bank Chairman Ben Bernanke contributed to energy price volatility last week, saying the Fed stands ready to try again to stimulate the US economy, but without explicitly stating another round of monetary easing is forthcoming. “This brought a hard sell-off intraday [on Aug. 26] as the broader markets fell 2%, but as investors continued to parse through Bernanke's speech, the broader markets rebounded for a 2% gain,” Raymond James analysts said.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said “Oil market participants seem optimistic about the US economy, which is keeping prices steady for now.

Meanwhile, Raymond James analysts question whether oil production in a post-Moammar Gadhafi Libya will be “V, U, or L” shaped. “With the Gadhafi regime finally out of power, we are now going to conservatively model Libyan oil production recovering to near prewar levels over the next 9 months,” they reported Aug. 29. “Using Iraq's production recovery after the 2003 war as a case study, albeit with a more conservative bias, we believe that Libya could get back to near prewar production levels of 1.4 million b/d by mid-2012.”

However, they said, “If anything, this may be too aggressive since there is still no clarity on 1) the amount of infrastructure damage and 2) the new Libyan government or its fiscal terms. From a longer-term perspective, the fact that Libya has been unable to deliver robust oil production growth following the lifting of [United Nations’] sanctions in 1999 and US sanctions in 2004 carries read-through for its post-recovery growth prospects. Even more attractive fiscal terms under the new government should not change the fact that Libya is a fundamentally mature oil province.”

Olivier Jakob at Petromatrix in Zug, Switzerland, noted last week was the “best in 8 weeks” for companies on Standard & Poor’s 500 index, gaining 4.74% during the week. Yet the index is still down 8.94% for August and down 6.43% for the year so far. Still he said, “US stock indices remain the main indices that are providing (in local currencies) the best returns since the start of the year. If we exclude the US indices, in our selection of the world’s main indices, the losses this year in local currencies average 15.2%." European stock indices remain “particularly depressed,” he said.

“Consumer and investor confidence indices are today comparable to levels last seen in the last quarter of 2008 and first quarter of 2009 and the European indices have plunged back to the levels of the summer of 2009,” said Jakob. “The S&P 500 is holding much better, and if it did suffer a setback from the levels of July 2011, it is very hard for us to describe the S&P 500 as oversold. A lot of hope is being put in the US Fed implementing further measures to support the US equity markets, but as we have been writing over and over again, the US equities are in no need of artificial support given that the S&P 500 sectors, apart from the financial sector, are absolutely not pricing gloom and doom. The main problem in US equities remains in the financial sector which is 65% down from the beginning of 2007 while the other sectors are on average up 1% (between plus 15% for consumer staples to minus 12% for industrials).”

This week will be “quite intense” in terms of macroeconomic inputs, followed by the long Labor Day holiday weekend in the US, he said.

Energy prices

The October contract for benchmark US light, sweet crudes rose 7¢ to $85.37/bbl Aug 26 on the New York Mercantile Exchange. The November contract inched up 6¢ to $85.70/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 7¢ to $85.37/bbl.

Heating oil for September delivery advanced 2.46¢ to $3.01/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month, however, declined 3.33¢ to $2.93/gal.

The September contract for natural gas was unchanged at $3.93/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dipped 0.3¢ but closed essentially unchanged at a rounded $3.99/MMbtu.

In London, the October IPE contract for North Sea Brent climbed 74¢ to $111.36/bbl. Gas oil for September gained $7.50 to $949.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped 9¢ to $107.52/bbl. So far this year, the OPEC barrel price has averaged $107.22/bbl. The OPEC Secretariat in Vienna will be closed Aug. 30-31 for Eid Al-Fitr, a major Islamic holiday at the end of the month-long fast of Ramadan.

Contact Sam Fletcher at samf@ogjonline.com.

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