MARKET WATCH: Natural gas prices resume advance; oil prices rise

Oil prices rose July 26 after the head of the European Central Bank vowed support for the euro, and the front-month natural gas contract gained in the New York market on a favorable government inventory report.

“As with commodities in general, crude oil received a shot in the arm yesterday after ECB Pres. Mario Draghi stated that the central bank would do ‘whatever it takes’ to save the euro,” reported Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “Thereafter there were some choppy moves during US trading hours as crude oil market’s reading of US data flow appeared to vacillate between hopes for further quantitative easing and the prospect that US demand could be improving.”

In Houston, analysts at Raymond James & Associates Inc. said, “West Texas Intermediate (relatively flat) was not as excited about the comments as Brent (up 1%), while natural gas gained 1% after the Energy Information Administration reported a relatively in-line injection.” EIA reported the injection of 26 bcf of natural gas into US underground storage in the week ended July 20—exactly in line with the Wall Street consensus. That brought working gas in storage to 3.189 tcf, up 487 bcf from the comparable period last year and 435 bcf above the 5-year average (OGJ Online, July 26, 2012).

Bucking a four-session trend, the Dow Jones industrial Average and Standard & Poor's 500 Index gained 2% each, and Spanish 10-year yields dropped below 7% on renewed hope for solution of the economic crisis. The SIG Oil Exploration & Production Index was up 2% and the Oil Service Index rose 4%.

GDP growth slows

The markets’ focus shifted in early trading July 27 to the US gross domestic product for the second quarter, with the US Department of Commerce confirmed economists’ consensus US economic growth slowed to an annual rate of 1.5%. DOC officials revised GDP growth in the first quarter to 2% from their earlier 1.9% estimate. But that still was not enough to reduce the US unemployment rate of 8.2%. Most analysts don’t expect the economy’s growth to accelerate in the last half of the year heading into the presidential election in November.

Such slow growth “could place continued downward pressure on crude oil,” Ground said, “To see some support from GDP data, the numbers would either have to disappoint significantly, thereby raising the prospect for further Federal Reserve Bank monetary easing or have to be significantly better than expectations and consequently feed optimism over US crude oil demand. A similar reaction from US consumer confidence is likely, although not to the same extent.”

The Federal Open Market Committee, policymaking arm of the Fed, meets next week, but Ground and others do not expect “an announcement of outright quantitative easing.” Instead, he said, “We expect the Fed to wait until there are stronger signals that the US economy is faltering. As such, we feel that any rallies [on] the back of QE3 hopes should be view with skepticism.” He cautioned, “Next week could see heightened volatility.”

Energy prices

The September and October contracts for benchmark US light, sweet crudes again had identical gains, up 42¢ each to $89.39/bbl and $89.67/bbl respectively July 26 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., also was up 42¢ to $89.39/bbl.

Heating oil for August delivery increased 2.45¢ to $2.87/gal on NYMEX. Reformulated stock for oxygenate blending for the same month regained 2.09¢ to $2.81/gal.

The August natural gas contract recouped 3.5¢ to $3.11/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., continued its decline, down 3¢ to $3.12/MMbtu.

In London, the September IPE contract for North Sea Brent rose 88¢ to $105.26/bbl. Gas oil for August escalated $18.75 to $905.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes climbed $1.26 to $101.47/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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