MARKET WATCH: New York crude prices decline; gas prices rally

Crude prices slipped lower, down 0.7% on the New York market amid global economic concerns, while natural gas continued its rally, up 2.6% as Tropical Storm Debby forced more Gulf of Mexico production to be shut in.

The Bureau of Safety and Environmental Enforcement said workers had been evacuated from 189 of the 596 manned platforms in the gulf as of mid-day June 25. Workers also have left 22 of the 70 offshore drilling rigs. Government officials reported 44.1% of daily oil production and 34.8% of daily gas production in the gulf are shut in. However, the storm was reported weakening June 26 as it slowly drifted eastward over Florida.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “One million bbl of crude oil has been lost due to shut-ins in the US gulf for Tropical Storm Debby, which never showed-up in the area where there are oil assets. There will be other storms and other shut-ins in the months to come, keeping in mind that the last 2 years have been particularly light in terms of tropical disruptions. Crude oil stocks on the US Gulf Coast are, however, plentiful, and we know that the current administration will be Strategic Petroleum Reserve trigger-happy the minute there is any damage done to oil platforms.”

Meanwhile, Spain and Cyprus requested bail-outs from the stronger European economies. Moody’ s Investors Service Inc. downgraded the credit ratings of 28 Spanish banks, including the two largest lenders, Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA. Those two banks remained investment grade, however. Bloomberg news service reported ratings for “at least a dozen” Spanish banks were reduced to junk status.

Cyprus—scheduled to assume the presidency of the European Union for 6 months effective July 1—requested June 25 a bailout of its banks. “It is now the fifth European nation to be bailed out, and there will be others,” Jakob reported. “The next one on the list is probably going to be Slovenia. Cyprus and Slovenia are small fish, but bailout after bailout, it does start to add up; pretty soon there will only be Germany and The Netherlands standing to finance the bailouts of other European nations.”

He noted the new Greek finance minister resigned 1 week after his nomination. “We do not expect much from the end-of-the-week EU meeting as Germany keeps on saying ‘Nein’ to all the sound-bites emanating from the new southern coalition (France, Italy, Spain). The Standard & Poor’s 500 Index was under pressure yesterday with weakness in the energy and the financial sectors.”

Analysts in the Houston office of Raymond James & Associates Inc. said the broader markets fell from investor fears this week's EU will prove ineffective in curbing the crisis. The Oil Service Index and the SIG Oil Exploration & Production Index followed the broader markets, falling 3.3% and 2.2%, respectively.

Jakob said the front backwardation in reformulated stock for oxygenate blending gasoline is surging ahead of the front-month contract’s June 29 expiry. “The expiring backwardation is growing wider each passing month,” he said. “The surge in the RBOB backwardation also means that if the US consumer is seeing some price correction at the pump, the impact is much less than suggested by the fall in crude oil prices. The price of West Texas Intermediate is down 20.2% from the start of the year, Brent is down 15.4%, but the average US price at the pump for regular unleaded is 4.2% higher. The pump prices are lower than their peaks of April, but we should not be over-optimistic about a demand revival…simply because for now the consumers are seeing only part of the drop in crude oil prices. The same applies to Europe, where the fall in international oil prices has been partially offset by a fall in the euro [valuation].”

However, Jakob said, “US refining margins are excellent and not only in the Midwest. Closure of US refining capacity on the East Coast has helped the margins for the remaining refineries.”

Trading volumes in both Brent and WTI were low June 25. “We could clearly see the interest to prevent Brent from falling below $90/bbl. Support at that level is being re-enforced and with interest to preferably maintain Brent above…$91/bbl,” Jakob said. “WTI is reinforcing its support at $78/bbl but still needs to regain $80/bbl. For today we trace the first support [for WTI] at $78.80/bbl, then $78/bbl and $77.56/bbl. First resistance is at $79.50/bbl, then $80/bbl and $81.10/bbl.

Energy prices

The August contract for benchmark US sweet, light crudes dropped 55¢ to $79.21/bbl June 25 on the New York Mercantile Exchange. The August contract lost 52¢ to $79.62/bbl. On the US spot market, WTI at Cushing, Okla., was down 55¢ to $79.21/bbl.

Heating oil for July delivery inched up 0.48¢ to $2.54/gal on NYMEX. RBOB for the same month jumped 7.59¢ to $2.65/gal, maintaining its rally.

The July natural gas contract continued to climb, up 6.9¢ to $2.69/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rose 62¢ to $2.71/MMbtu.

In London, the August IPE contract for North Sea Brent increased 3¢ to $91.01/bbl. Gas oil for July dropped $4 to $808/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes regained 18¢ to $88.92/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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