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MARKET WATCH: Weak economy pulls down crude oil prices

Crude oil prices continued to tumble July 23, rolling back gains from a seven-session rally as market attention shifted to economic weakness and reduced demand from earlier concerns that Middle East tensions might threaten supply.

The front-month crude contract fell 4% in the New York market, but natural gas futures rose to a high for the year on forecasts for warmer weather this week.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “As highlighted in yesterday’s futures market and ETF [exchange-traded funds] positioning, participants appear to be caught between demand concerns centered around the Euro-zone and the spillover effects on the US and Chinese economies, and supply concerns surrounding Iran and the ongoing conflict in Syria.”

Nevertheless, he said, “For now…supply concerns seem to have the upper hand, as Brent prices remain above the $100/bbl level. We maintain that Brent at $90/bbl would not reflect the underlying fundamentals of the fairly strong product market. However, barring an escalation of supply shortfalls, Brent above $110/bbl would be too high. Indeed, we forecast an average price of $100/bbl for the third quarter.”

The Hongkong & Shanghai Banking Corp. Ltd.’s latest Purchasing Managers Index (PMI) survey came in at 49.5, up from 48.2 in June. “While it is still below 50, which signals a contraction in the manufacturing sector, the data can be read as mildly positive should the official PMI manufacturing print show the same trend,” said Ground. “We would also await the August numbers before getting excited about a stabilization in Chinese manufacturing activity.”

European PMI numbers were less encouraging. “German and French data disappointed, which has placed added pressure on the euro and consequently is weighing on commodities. US data flow is fairly light today,” he said.

Energy prices

The new front-month September contract for benchmark US sweet, light crudes traded at $87.91-91.64/bbl before closing at $88.14/bbl, down $3.69 July 23 on the New York Mercantile Exchange. The October contract fell $3.67 to $88.43/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $3.69 to $88.14/bbl.

Heating oil for August delivery dropped 10.54¢ to $2.82/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 6.01¢ to $2.88/gal.

The August natural gas contract increased 3.6¢ to $3.12/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 6.2¢ to $3.10/MMbtu.

In London, the September IPE contract for North Sea Brent lost $3.57 to $103.26/bbl. Gas oil for August fell $24.75 to $894.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped $3.63 to $100.07/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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