MARKET WATCH: Energy prices fluctuate in erratic markets

Energy prices remained erratic Sept. 14 with front-month crude contracts giving back much of the previous day’s gain in the New York market while recovering some of its earlier loss in London.

In Houston, analysts at Raymond James & Associates Inc. blamed the drop in US crude futures prices on “a larger-than-expected draw in crude that was partially offset by an unexpected build in gasoline and a larger than expected build in distillates.” But they also noted that, during the reported period, the US Strategic Petroleum Reserve transferred 1 million bbl of crude to commercial inventories, “giving the report a slightly more bullish tilt.”

However, Olivier Jakob at Petromatrix in Zug, Switzerland, claimed the latest US inventory report “had little market impact given that the products were showing some relatively strong stock build and that it is hard to read the crude oil stock draw” because of disruptions of both supply and demand from Tropical Storm Lee (OGJ Online, Sept. 9, 2011).

Otherwise, he said, “Global markets continue to yo-yo on any headline that has ‘Greece’ in it, treating ‘no news’ as if it was ‘new news.’”

The Dow Jones Industrial Averaged rallied 1.3% when the governments of France and Germany reiterated financial support for Greece, following a conference call among the chief executives of those three countries. The SIG Oil Exploration & Production Index also was up 1.3% while the Oil Service Index gained 1.5% “even after a preliminary ruling suggested partial liability from several service names in the Macondo oil spill,” Raymond James analysts said.

Jakob said, “We have stopped counting in which cycle we are in this Greek crisis, but we are relatively confident that it is not the last cycle.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “We expect the market to remain broadly risk-averse.

Walter de Wet, another Standard Bank Group analyst, said, “Markets are thirsting for liquidity. The liquidity premium has risen (although not as high as in 2008). We believe that the premium will rise even further in the next 2 weeks. We also believe that commodities priced in dollars will struggle.”

De Wet said, “We’ve long maintained that commodities can withstand a sovereign debt crisis. So far, they have. But there has been contagion, and European banks are struggling with dollar funding. A breakdown in the money market, even temporary, would be bearish for commodities, including gold.”

Moreover, he said, “Because of the rise in funding risk, we believe that commodities will find it difficult to rally. This is consistent with our view that upside for Brent crude and base metals is capped…. The risk of further downside for commodities has increased, with the potential downside a function of the tightness of the market and cost-of-production levels.”

Energy inventories

The Energy Information Administration reported the injection of 85 bcf of natural gas into US underground storage in the week ended Sept. 9, more than the earlier 83 bcf Wall Street consensus. That put working gas in storage above 3.1 tcf, down by 140 bcf from the year-ago level and 52 bcf below the 5-year average.

The EIA earlier said US commercial crude inventories fell 6.7 million bbl to 346.4 million bbl in the week ended Sept. 9, well below the 3 million bbl drop anticipated on Wall Street. On the other hand, gasoline stocks climbed by 1.9 million bbl to 210.8 million bbl last week—above average for the time of year—compared with analysts’ expectations of a 500,000 bbl decline. Finished gasoline inventories increased while blending components remained unchanged. Distillate fuel inventories increased by 1.7 million bbl to 158.5 million bbl in the same period, more than double the market’s outlook for a 700,000 bbl increase (OGJ Online, Sept. 14, 2011).

Energy prices

The October contract for benchmark US sweet, light crudes retreated $1.30 to $88.91/bbl Sept. 14 on the New York Mercantile Exchange. The November contract lost $1.27 to $89.01/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.30 to $88.91/bbl.

Heating oil for October delivery regained 0.89¢ to $2.95/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 1.66¢ to $2.73/gal.

The October contract for natural gas continued climbing, up 5.9¢ to $4.04/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rose 4.8¢ to $4/MMbtu.

In London, the October IPE contract for North Sea Brent reclaimed 51¢ to $112.40/bbl. Gas oil for October continued its fall, down $2.75 to $922/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 51¢ to $107.91/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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