MARKET WATCH: Oil prices make modest gains while gas retreats

Oil prices maintained modest increases June 15 despite uncertainty over the June 17 election in Greece, but the front-month natural gas contract was down 1% on the New York futures market from a 13% spike the previous session.

Commodity and equity markets were up some in early trading after the New Democracy Party won by a small margin in Greece, raising hopes a pro-austerity government will be formed. But relief was short-lived as the interest rate on Spain's 10-year bonds hit a new high of 7.18% and stocks fell 2.6% in Madrid. Bond yields in the 7% range have already prompted three Euro-Zone countries, including Greece, to ask for bailouts.

Oil products outperformed crude again, boosting European and US refinery margins. “Time spreads in Brent and West Texas Intermediate were also firm,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “However, shallow contango in the dated-Brent market persists, signaling short-term overhang of physical crude cargoes which will take some time to clear. In the options market, implied volatility softened slightly with puts still better bid than calls.”

Last week, the net price for front-month crude was little changed on the New York market, “reflected by the reported position changes of major money managers,” Zhang reported. “For oil products, non-commercials reduced net length in gasoline but added to their net length in heating oil. It appears the rapid outflow of speculative money from oil has paused, at least for now.”

In Houston, analysts at Raymond James & Associates Inc. reduced their 2013 price forecasts for crude to an average $65/bbl for WTI, down from $83/bbl previously, and to $80/bbl for Brent, down from $95/bbl.

“Both of these new forecasts are now well below the futures strip and consensus estimates,” they said. They also reduced their 10-year outlook for WTI to $80/bbl from $90/bbl.

“The downside risk we saw in oil prices has started sooner than we had expected, due primarily to demand fears spurred by a flare-up of the European debt crisis and negative economic data points across the globe,” Raymond James analysts explained. “We continue to see downside pressure for oil prices into 2013, as our oil model points to a severely oversupplied global oil market. While lower demand is part of the story, robust production growth in the US is the monster lurking in the shadows. We expect this bogeyman to fully show himself before the end of this year. Accordingly, we believe Saudi Arabia will begin to noticeably cut production in the fourth quarter, while US producers will begin to curb activity in upcoming weeks.”

They said, “Combining the US-driven resurgence in non-OPEC supply with our lackluster demand expectations, we believe that once the market's focus shifts from demand to supply, the oil price picture will get uglier.”

 

Energy prices

The July contract for benchmark US light, sweet crudes rose 12¢ to $84.03/bbl June 15 on the New York Mercantile Exchange. The August contract advanced 11¢ to $84.33/bbl. On the US spot market, WTI at Cushing, Okla., was up 12¢ to $84.03/bbl.

Heating oil for July delivery increased 1.87¢ to $2.65/gal on NYMEX. Reformulated stock for oxygenate blending for the same month gained 2.53¢ to $2.70/bbl.

The July natural gas contract gave back 2.8¢ to $2.47/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., jumped 21.9¢ to $2.41/MMbtu, reducing the previous gap via the futures market price.

In London, the August IPE contract for North Sea Brent was up 44¢ to $97.61/bbl. Gas oil for July climbed $6.50 to $851.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 80¢ to $96.02/bbl. However, the recent decline in the oil market has reduced its basket price to an average $113.80/bbl so far this year.

Contact Sam Fletcher at samf@ogjonline.com

 

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