MARKET WATCH: Energy prices fall despite lackluster market

Although there was no major event to jar the market, energy prices fell Sept. 24 with contracts giving back most of—or in some cases more than—their gains from the two previous sessions.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, reported, “Yesterday some unease crept into markets as a disagreement among Euro-zone members and a weaker business confidence measure in China once again brought into question real demand for energy and industrial metals.”

Germany's business confidence posted its fifth consecutive month of decline, triggering renewed investor concerns and pushing the broader markets and crude down 0.2% and 1%, respectively, said analysts in the Houston office of Raymond James & Associates Inc. The Oil Service Index and the SIG Oil Exploration & Production Index continued to decline, down 1.3% and 1.5%, respectively. “Natural gas also fell by 0.7%, as forecasts called for warmer-than-expected weather,” Raymond James analysts said.

However, oil prices were up in early trading Sept. 25 after the September survey by the Conference Board Inc., a nonprofit business membership and research group, showed US residents are more optimistic about jobs and the economic outlook for the next 6 months, by the highest level since February.

Also the Standard & Poor’s/Case Shiller Home Price Indices, the leading measure of US home prices, showed average home prices increased 1.5% for its 10-city composite and 1.6% for its 20-city composite in July compared with June figures. It marked the third consecutive month all 20 cities and both composites recorded positive monthly changes, officials said.

In other news, Scotiabank’s Commodity Price Index climbed 3.1% in August after slipping 0.4% in July. Analyst Patricia Mohr reported the rally reflected three supply-side developments:

• The strength of global oil markets linked to Middle East tensions and sharply lower North Sea output due to maintenance and strikes.

• A nascent recovery in US housing in the face of tight North American building material supplies.

• Historically high grain and oilseed prices due to drought in the US Midwest and parts of Russia.

Mohr reported the all items index remains 16.9% below the near-term peak in April 2011 “just prior to the advent of financial market concern over Euro-zone ‘sovereign’ debt.” Central bank measures to boost a struggling world economy through exceptionally low interest rates and massive liquidity injections have lifted investor and business confidence in September, triggering renewed interest in riskier assets such as equities and commodities, she said. These initiatives include the European Central Bank’s open-ended bond purchase program to lower yields in the secondary market for Euro-zone countries seeking bailouts (subject to strict conditions on economic and fiscal policy); the US Federal Reserve’s third round of quantitative easing (QE3); and the Bank of Japan’s increase in its asset purchase program to drive down the value of the yen and lift its economy.

“While the near-term boost to global growth will likely be limited,” Mohr said, “QE3 has significantly pushed down the US dollar, lifting dollar-denominated commodity prices across a wide swathe.”

Energy prices

The November and December contracts for benchmark US sweet, light crudes lost 96¢ each to $91.93/bbl and $92.25/bbl, respectively, Sept. 24 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., kept in step with the front-month crude futures contract, down $96¢ to $91.93/bbl.

Heating oil for October delivery declined 2.2¢ to $3.10/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 2.49¢ to $2.92/gal.

The October natural gas contract fell 4.8¢ to $2.84/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 4.9¢ to $2.82/MMbtu.

In London, the November IPE contract for North Sea Brent was down $1.61 to $109.81/bbl. Gas oil for October dropped $8.50 to $966.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes retreated 68¢ to $107.47/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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