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MARKET WATCH: Reassessment of Spain's bailout brings down prices

Energy losses accelerated June 11 with front-month crude down 1.7% at the close of the New York market as the weekend euphoria over the bailout of Span’s banks faded amid worries whether that country will regain control of its economy.

“The broader markets opened the day notably higher; however, the Standard & Poor’s 500 Index ended the day down 1.3% as the weekend's ‘Spailout’ quickly turned back into a ‘Spanic,’” said analysts in the Houston office of Raymond James & Associates Inc. “Despite the €100 billion bank recapitalization, investors became increasingly worried that the Euro-zone is running out of time, especially with a potential ‘Grexit’ [Greece leaving that common currency group] still on the horizon.” Some investors are already worried by the possibility of an “Italeave” or a “Portugout” if Italy and Portugal were to leave the group.

Crude followed the broader markets down 1.7%, and front-month natural gas dropped 1.4% “to the lowest level in 6 weeks,” Raymond James analysts reported.

“The oil market had a rollercoaster day, as did most other markets,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. However, he pointed out, “Oil products were much more resilient, resulting in much stronger product cracks.” News of maintenance and start-up problems at two refineries helped support product cracks.

Start-up of a new crude unit at Motiva Enterprises LLC’s 600,000 b/d refinery in Port Arthur has been postponed due to operational issues. Motiva is the refining joint venture of Shell Oil Co. and Saudi Aramco. Motiva recently completed a 5-year 325,000 b/d expansion of that refinery, making it the largest in the US. Although Motiva officials have not specified how long it may take until startup, other sources have estimated it could be 2-5 months before the added capacity is fully operational.

Raymond James analysts said, “There have been concerns that this additional capacity would create an oversupply situation on the Gulf Coast, pressuring product prices. Additionally, the incremental heavy crude processing capacity was expected to weaken light-heavy spreads, as the price of heavy barrels was bid higher. This combination would of course pressure Gulf Coast crack spreads.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “Given that the Saudi barrels that are feeding that refinery are already on the water, this should lead to further crude oil stock build in the US Gulf Coast.”

Royal Dutch Shell PLC previously announced its 500,000 b/d Singapore refinery will shut down in early July for maintenance that will take about a month to complete.

Energy prices

The July contract for benchmark US sweet, light crudes fell $1.40 to $82.70/bbl June 11 on the New York Mercantile Exchange. The August contract dropped $1.39 to $83/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.40 to $82.70/bbl.

Heating oil for July delivery declined 3.64¢ to $2.64/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 2.86¢ to $2.66/gal.

The July natural gas contract lost 8.1¢ to $2.22/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 1.9¢ and also closed at $2.22/MMbtu.

In London, the July IPE contract for North Sea Brent dropped $1.47 to $98/bbl. Gas oil for June rose $5.75 to $851.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased $1.57 to $97.24/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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