MARKET WATCH: Brent crude price rebounds; WTI slips lower

The front-month North Sea Brent crude oil contract rebounded Sept. 6, wiping out the loss of the previous session, while in New York benchmark US crude continued to dwindle, dropping as low as $83.20/bbl in intraday trading before recovering much of that decline as US markets reopened after the Labor Day holiday.

Crude prices were down 0.5% at the end of the regular session in the New York market on weather reports of two possible tropical storms, but front-month natural gas was up 2% on the same news.

As of midday Sept. 6, the US Bureau of Ocean Energy Management, Regulation, and Enforcement reported 131 of 617 manned production platforms in the Gulf of Mexico were still without crews in the wake of Tropical Storm Lee last week. In addition, 12 of the 70 mobile drilling rigs previous operating in the gulf lacked personnel. Officials said 60.5% of normal crude production and 41.6% of natural gas production from the gulf remain shut in.

In Houston, analysts at Raymond James & Associates Inc. noted the Standard & Poor’s 500 index retreated 0.7%, “the third consecutive day of losses since the start of the month.” The Oil Service Index and SIG Oil Exploration & Production Index (EPX) were down 1.3% and 1.5%, respectively. But equity futures prices were up in early trade Sept. 7 “on Germany's pro-bailout court ruling—probably the first time in history traders are actively tracking the German Constitutional Court—and in anticipation of President Barack Obama's jobs speech [scheduled Sept. 8],” Raymond James analysts said.

Press reports suggest Obama may propose a $300 billion US economic stimulus plan consisting of extension of payroll tax cuts, additional tax cuts, and some infrastructure spending initiatives. “It is hard to say whether such a plan can be delivered. It has appeared to lifted sentiment, nevertheless,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

Meanwhile, references by some analysts to weak West Texas Intermediate prices in the Sept. 6 market were “only a misinterpretation of the official settlement price of WTI, which is being compared to the close of Sept. 2 due to the US holiday,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “For the record, WTI closed very strong, gaining $2.42/bbl during the day [from its intraday low price], and the Brent premium to WTI widened by 40¢/bbl while the reformulated blend stock for oxygenate blending (RBOB) crack to Brent was under strong pressure.”

Zhang reported, “Gasoline and distillate cracks also strengthened yesterday, which lifted refining margins. The term structure for WTI remained largely unchanged, while Brent structure weakened slightly but remained in very steep backwardation at the front-end of the curve.”

The oil market was helped by the US Institute for Supply Management (ISM) non-manufacturing survey yesterday. “The survey printed 53.3, a slight improvement from July’s 52.7, and more crucially, indicates that the service sector remains in an expansionary mood,” said Zhang. “The data alleviates concerns of an imminent recession in the US to some extent.”

In other news, Jakob said, “With its ‘nuclear attack’ on the Swiss Franc, the Swiss National Bank is trying to eliminate the status of the Swiss Franc as a safe haven, and we should not exclude that some of those safe-haven-seeking [investment] funds move to oil or other commodities.” The Swiss Franc lost about 10% yesterday, “which is a gigantic one-day move for the currency markets that are trading on huge leverage,” he said. “For those trading futures, the margins for trading the Swiss Franc will increase today and Friday. With Brent at $125/bbl on a 2008 euro-dollar equivalent, demand destruction in progress, and a market that has gone through $10/bbl 1-day trading volatility this year, we will not qualify oil futures as a ‘safe haven.’”

Energy prices

The October and November contracts for benchmark US light, sweet crudes were down 43¢ each on Sept. 6, closing at $86.02/bbl and $86.31/bbl, respectively, on the New York Mercantile Exchange. On the US spot market, WTI at Cushing, Okla., also declined 43¢, to $86.02/bbl.

Heating oil for October delivery increased 1.28¢ to $3.01/gal on NYMEX. RBOB for the same month continued its retreat, however, down 1.7¢ to $2.82/gal following the Labor Day holiday that marked the end of the US summer driving season.

The October contract for natural gas increased 6.6¢ to $3.94/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 16.4¢, also closing at a rounded $3.94/MMbtu.

In London, the October IPE contract for North Sea Brent escalated $2.81 to $112.89/bbl. Jakob said, “Having Brent at a $27/bbl premium to WTI is not good for everyone.” Gas oil for September was up $5.25 to $939.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dipped 10¢ to $108.32/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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