MARKET WATCH: Crude oil price falls; natural gas price climbs

Crude oil prices continued falling Aug. 30 in the New York market as Hurricane Isaac weakened into a tropical storm and moved inland, apparently leaving coastal oil and gas infrastructure intact, but natural gas climbed higher despite a bearish inventory report.

Inspection teams and work crews began moving offshore in the wake of the storm, but the Bureau of Safety and Environmental Enforcement reported 509 of the 596 production platforms and 50 of the 76 rigs in the Gulf of Mexico were still idle as of mid-day Aug. 30. It said 94.99% of daily oil production and 72.52% of daily gas production from federal leases in the gulf were shut in ahead of the storm.

Although wind damage and injuries overall were not as high as with the much stronger Hurricane Katrina in 2005, officials said slow-moving Isaac dumped more rain than the earlier storm, causing massive flooding in parts of Louisiana and Mississippi. The storm knocked out power, leaving 40% of Louisiana customers in some areas without electricity. It is expected to produce more rain and tornados as it moves into the Midwest US through the weekend.

Meanwhile, Chairman Ben Bernanke said the Federal Reserve will take further action to boost the “far from satisfactory” US economy but did not specify any plans at the Aug. 31 close of a conference of central bank officials in Jackson Hole, Wyo. Analysts generally did not expect Bernanke to reveal anything new, although some say the Fed is more likely now to initiate a third round of Treasury bond buying under its “quantitative easing” program. The stock market moved higher prior to Bernanke's comments only to wipe out most of those gains after his speech but then rebound higher.

“The uncertainty surrounding Bernanke's comments and defensive positioning ahead of the speech caused the Standard & Poor’s 500 Index to lose 0.7% yesterday. Energy indices underperformed, with the EPX [SIG Oil Exploration & Production Index] and OSX [Oil Service Index] falling 2.8% and 2.3% respectively, while crude also fell 1.8%. Only natural gas had a strong session, with a gain of 5.1%,” said analysts in the Houston office of Raymond James & Associates Inc.

However, Walter de Wet at Standard New York Securities Inc., the Standard Bank Group, reported “Front-month West Texas Intermediate crude remains firmly below its 200-day moving average, and technically it looks increasingly bearish. With the tension around Iran higher following a breakdown in talks . . . as well as what appears to be a fairly healthy product market in the US at the moment, failure for WTI to move above this resistance level should be worrying.”

He said WTI and Brent remain “vulnerable to a sell-off” in the wake of Bernanke’s remarks. “The fact that [the Group of Seven—France, Germany, Italy, Japan, UK, US, and Canada] finance ministers indicated in a statement yesterday that they are monitoring high oil prices and are mindful of the risk they pose to growth may see bulls think twice about increasing length, especially after so much focus has been on the potential release of oil from the Strategic Petroleum Reserve,” De Wet said.

“While current high crude oil prices are driven by supply constraints and higher political tension, we believe that demand is not strong enough to see Brent crude oil sustain a level above $110/bbl for much of the remainder of 2012. While further Fed stimulus may boost oil prices, the rally should fade as higher crude and product prices are set to erode product demand,” he said.

Energy prices

The October contract for benchmark US light, sweet crudes fell 87¢ to $94.62/bbl Aug. 30 on the New York Mercantile Exchange. The November contract dropped 85¢ to $94.96/bbl. On the US spot market, WTI at Cushing, Okla., was down 87¢ to $94.62/bbl.

Heating oil for September delivery inched up 0.88¢ to $3.12/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 1.77¢ to $3.08/gal.

The new front-month natural gas contract escalated 6.3¢ to $2.75/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 7.8¢ to $2.73/MMbtu.

In London, the October IPE contract for North Sea Brent increased 11¢ to $112.65/bbl. Gas oil for September rose $5.75 to $984.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained 76¢ to $110.66/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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