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MARKET WATCH: Crude oil, natural gas prices fall 3% each

Front-month crude and natural gas prices each fell 3% on June 28 in the New York futures market, but both rallied afterhours on indications leaders at the weekly European Union summit were close to agreement on several measures to address their debt crisis. The gas price had dropped due to a bearish inventory report, yet it too rebound with the positive European indicators.

The Energy Information Administration reported the injection of 57 bcf of natural gas into US underground storage during the week ended June 22, surpassing the Wall Street consensus for a 53 bcf increase. The latest addition raised working gas in storage above 3.06 tcf, up 653 bcf from year-ago level and 613 bcf above the 5-year average (OGJ Online, June 28, 2012).

On June 29, EU leaders announced an apparent win for financially troubled Italy and Spain while German Chancellor Angela Merkel came under political fire at home for not hanging tougher in negotiations.

Under the new agreement, bailout funds will be given directly to weak banks rather than as loans to governments, which would increase the sovereign debt. Bailout funds are to be used “flexibly and efficiently” to stabilize markets for European government bonds. Counties that impose the economic reforms required by the EU now can obtain bailouts without submitting to stringent programs. The measures also are aimed at a tighter connection between national budgets, currency, and governments in a new economic union down the line.

Olivier Jakob at Petromatrix in Zug, Switzerland, reported, “West Texas Intermediate  printed a new low and a new closing low for the year [on June 28] and would have been in bad shape today if it was not for the overnight rally on the EU headlines. For the weekly charts it needs to regain $80/bbl; that remains a key task. For today we trace the first resistance at $80/bbl then$ 81/bbl and $82/bbl. First support is at $79/bbl, then $78.40/bbl and $77.40/bbl.”

He said, “US exports of distillates remain very strong, but exports of gasoline are stalling.US exports of gasoline to Mexico is 130,000 b/d lower than a year ago and at the lowest level since October 2010.” US net exports of products are at 1.2 million b/d.

Jakob said, “Distillates imports are down to only 98,000 b/d, which is the lowest level since 1983, and 93,000 b/d of that is coming from Canada. With net exports of 1 million b/d of distillates, there is currently 3 million b/d of US refineries that are running for exports of distillates. Crude oil imports from Saudi Arabia at 1.6 million b/d were at the highest levels since July 2008.”

However, with the delayed start-up of new units at Motiva Enterprises LLC’s expanded 600,000 b/d refinery in Port Arthur, Tex., Jakob said, “We should expect those flows to be somewhat reduced in coming months and therefore leaving more room to redirect some Saudi crude” (OGJ Online, June 19, 2012).

Energy prices

The August contract for benchmark US light, sweet crudes fell $2.52 to $77.69/bbl June 28 on the New York Mercantile Exchange. The September contract dropped $2.51 to $78.10/bbl. On the US spot market, WTI at Cushing, Okla., was down $2.52 to $77.69/bbl.

Heating oil for July delivery lost 4.18¢ to $2.55/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.62¢ to $2.61/gal.

The new front-month August natural gas contract declined 7.6¢ to $2.72/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 10.2¢ to $2.78/MMbtu.

In London, the August IPE contract for North Sea Brent fell $2.14 to $91.36/bbl. Gas oil for July was down $7.25 to $821.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes inched up 1¢ to $90.92/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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