MARKET WATCH: Energy prices spiral down amid European woes

Energy prices continued to spiral downward with crude slipping 0.3% May 17 in the New York futures market as the European Central Bank halted loans to banks in Greece, bringing the Euro-zone a step closer to possible break up.

The front-month natural gas contract dipped 0.9% after the Energy Information Administration reported a bigger-than expected injection of 61 bcf of gas into US underground storage in the week ended May 11 (OGJ Online, May 17, 2012).

European concerns continued to weigh on the broader markets, said analysts in the Houston office of Raymond James & Associates Inc. “The Standard & Poor’s 500 Index tumbled 1.5% as investors' view of the global economic outlook remained grim,” they said. Energy stocks followed the commodities and broader markets down, with the SIG Oil Exploration & Production Index falling 2.1% and the Oil Service Index dropping 0.6%.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said US data also contributed to the woes of risk assets with the latest area economic report from the Philadelphia Federal Reserve Bank “turning negative.”

Zhang maintains “a neutral to slightly bullish view for the oil market in the very short term, as the Euro-zone debt crisis is unfolding.” Meanwhile, he said, “The reopening of the Iranian nuclear negotiations later this month poses substantial risks to both the upside and downside. That said, there is fairly firm fundamental support at the $100/bbl level for crude oil prices in the short term.”

He expects oil market fundamentals to tighten in the second half of this year. “Brent crude oil has remained in backwardation so far this year, which means oil stocks are unlikely to have built much outside the US. The spring refinery maintenance season in the Northern Hemisphere has come to an end, which should see crude demand pick up,” Zhang said. “However, we are bearish on oil product cracks (price difference between products and crude oil) for the third quarter due to the expected high refinery runs. We expect a seasonal product build in middle-distillates in the third quarter.”

Energy prices

The June and July contracts for benchmark US light, sweet crudes each dipped 25¢ to $92.56/bbl and $92.94/bbl, respectively, on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., also was down 25¢, matching the front-month futures price of 92.56/bbl.

Heating oil for June delivery declined 4.86¢ to $2.85/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 4.27¢ to $2.88/gal.

The June natural gas contract lost 2.4¢ to $2.59/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., climbed 5.9¢ to $2.56/MMbtu.

In London, the new front-month July IPE contract for North Sea Brent fell $2.26 to $107.49/bbl. Gas oil for June dropped $13 to $918.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down $1.04 to $107.10/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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