MARKET WATCH: Oil ends its short rally; gas prices climb

The front-month crude contract retreated June 18, ending a two-session rally on the New York market as the Euro-Zone financial crisis continued to deteriorate and the US dollar strengthened.

“Natural gas had a huge day, finishing up more than 6% as forecasts for warmer weather in the Northeast and Midwest provided stronger buying interest on the margin,” said analysts in the Houston office of Raymond James & Associates Inc.

Although relieved by the win of the pro-bailout party win in Greece, markets quickly refocused on Spain “where the 10-year bond yields have broken the 7% mark and were trading up to 7.2%,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “At those yields it is not only the Spanish banks that will need a bailout.”

The Labor Department reported June 19 US job openings fell to a seasonally adjusted 3.4 million in April—the fewest in 5 months. That’s down from 3.7 million job openings in March, the largest number in nearly 4 years.

There were 12.5 million unemployed workers in April—“an average of 3.7 people competing for each open job,” the Associated Press reported. It said, “Openings have risen by almost a third since the recession ended in June 2009. But they are still below pre-recession levels of about 5 million/month.”

The Federal Open Market Committee, the policy-making arm of the US Federal Reserve Bank, opened a 2-day meeting June 19, during which it is expected to discuss the slumping US economy, the Euro-Zone crisis, and shaky financial markets. “A few market participants are still waiting and hoping for the US Fed to trigger a new round of something that can boost global markets,” Jakob said.

However, some observers expect any action by the Fed this week most likely will be limited to extension of its “Operation Twist” program whereby the Fed sells shorter-term securities and buys longer-term bonds to reduce long-term interest rates and encourage borrowing and spending. That program is scheduled to expire in 2 weeks.

Otherwise, Fed officials almost certainly will reiterate their assurance they are ready to take some appropriate but unspecified action at some unspecified time.

Nuclear talks deadlocked

James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “It appears that the no deals will emerge agreed from the ongoing Iranian nuclear negotiations in Moscow. The European Union will then press ahead with its embargo from July 1.”

Iranian officials have been negotiating with representatives from the United Nations security council—the US, China, Russia, France, and Britain—plus Germany to resolve the conflict over Iran’s nuclear program. Just days away from the EU’s official deadline for embargo of Iranian crude, both sides blamed each other for the deadlock.

“It can be reasonably assumed that the embargo will have a limited short-term impact on European refiners because most of them have already stopped importing Iranian oil,” said Zhang. “The sticking point is the stopping of insurance cover provided by European insurers, which is likely to have a more far-reaching impact.”

With the unexpected non-start of new units at Motiva Enterprises LLC’s 600,000 b/d refinery in Port Arthur, Tex., Jakob said, “Saudi Arabia has lost 325,000 b/d of its crude flows that it can divert somewhere else, and with the continued increase from Iraq, the world should be able to accommodate a further loss of Iranian barrels due to sanctions.”

Moreover, disruption of Iranian crude exports “will have an impact on sour crudes but less so on light, sweet crude oil that continues to suffer from oversupply,” he said.

Raymond James analysts earlier announced the second major reduction this year in their oil price forecast, cutting the average 2013 price of West Texas Intermediate to $65/bbl from $83/bbl and Brent to $80/bbl from $95/bbl (OGJ Online, June 18, 2012). On June 19, they also reduced their estimates for alternative fuel and chemical companies.

However, they said a temporary period of depressed oil prices does not “mark the death knell for these emerging technologies.” The primary risk “may come in the realm of financing,” they said. “On the other hand, for the first time in about a year, we are not making additional across-the-board cuts in estimates for the solar space, though as a general rule the bias in solar estimates remains to the downside.”

Energy prices

The July contract for benchmark US sweet, light crudes surrendered much of its gains in its recent rally, dropping 76¢ to $83.27/bbl June 18 on the New York Mercantile Exchange. The August contract gave back 73¢ to $83.60/bbl. On the US spot market, WTI at Cushing, Okla., was down 76¢ to $83.27/bbl.

Heating oil for July delivery declined 2.88¢ to $2.62/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 4.08¢ to $2.66/gal.

However, the July natural gas contract jumped 16.8¢ to $2.64/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., continued to climb, up 4.2¢ to $2.46/MMbtu.

In London, the August IPE contract for North Sea Brent dropped $1.56 to $96.05/bbl. Gas oil for July fell $10 to $841.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 99¢ to $95.03/bbl.

Contact Sam Fletcher at


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