MARKET WATCH: Energy prices rise in still-nervous markets

Energy prices rose Sept. 4 as the New York market reopened after the US Labor Day holiday, but crude was up and natural gas was down in early trading in mixed markets Sept. 5 as a proposed economic plan by the head of the European Central Bank was leaked ahead of a pending press conference.

The euro rallied on reports ECB Pres. Mario Draghi will reveal a “sterilized” unlimited bond purchasing program in an effort to resolve the Euro-zone debt crisis. Draghi's strategy reportedly will focus on government bonds of 3-year duration or less issued by “peripheral” countries.

Those bonds “have been snapped up by hedge funds in recent trading, driving their yields down considerably,” said Daryl Montgomery, an independent market. “Governments must agree to ECB control to get aid and must meet the conditions they agree to in order to continue to have their bond markets supported (Greece has been notorious for violating its promises in this regard).”

He said, “A failed government-bond auction in Germany this morning indicates why the plan won't work.” Germany attempted to sell €5 billion in bunds but found buyers for only €3.61 billion of its debt. “The other more solvent credits of the Euro-zone, such as Finland, The Netherlands, and Denmark, are likely to face the same problem in the future,” said Montgomery. “Lower interest rates in Spain and Italy are going to mean higher rates in the north.” Montgomery organized a group of independent investors and traders who provide market information to the public and writes the online Helicopter Economics Investing Guide.

Meanwhile, the US Department of Labor reported productivity of US companies rose at a modest annual rate of 2.2% in the second quarter, topping expectations of a 1.6% gain. In the same period, labor costs rose 1.5% vs. the 1.7%. Economists say rising productivity is a double-blade sword. On one hand, it can boost corporate profits so that companies can afford to expand operations and create more jobs. However, it also means companies are getting more from current workers, so additional employees may not be needed.

In other news, the US Bureau of Safety and Environmental Enforcement reported workers had not yet returned to 21 production platforms and 2 rigs in the Gulf of Mexico as of midday Sept. 4. Government officials reported 51.51% of daily oil production and 29% of daily gas production from federal leases in the gulf remained shut in. Before Hurricane Isaac made landfall in Louisiana late Aug. 28, workers were evacuated from 505 of the 596 manned production platforms and 50 of the 76 rigs in the gulf with 94.72% of daily crude production and 71.64% of daily gas production shut in.

Energy prices

The October and November contracts for benchmark US light, sweet crudes increased 68¢ each to $95.30/bbl and $95.64/bbl, respectively, Sept. 4 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., also was up 68¢, matching the front-month futures contract closure of $95.30/bbl.

The new front-month October contract for heating oil increased 1.35¢ to $3.15/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 4.42¢ to $2.95/gal.

The October natural gas contract continued its rally, up $10.6¢ to $2.85/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 11.9¢ to $2.86/MMbtu.

In London, the October IPE contract for North Sea Brent dropped $1.60 to $114.18/bbl. Gas oil for September fell $3.50 to $998/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained 74¢ to $112.85/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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