MARKET WATCH: Oil prices rise, natural gas declines amid mixed market signals

Prices for crude oil posted modest gains but those for natural gas declined Sept. 6 as markets continued to assess mixed economic signals.

The US Department of Labor reported 96,000 new jobs in August, fewer than expected. It also said US unemployment dropped from 8.3% in July to 8.1% last month. But the decline was triggered primarily by the growing number of workers who have given up looking for nonexistent jobs and who therefore are not included in unemployment figures. The US work force is now at its lowest level in 31 years, officials said.

The government revised earlier estimates of new jobs in June and July down by 41,000 openings, primarily due to the termination of 39,000 federal, state, and local government jobs in those 2 months. “In previous recoveries, governments have typically added jobs, not shed them,” the Associated Press reported.

Moreover, officials said average hourly pay was down and manufacturers eliminated the largest number of jobs in 2 years. Optimists hope these latest signs of a stalled economic recovery will prompt new economic stimulus by Federal Reserve officials at their scheduled meeting next week.

Meanwhile, the government-bond purchasing plan revealed by European Central Bank Pres. Mario Draghi continued to stimulate financial markets overseas (OGJ Online, Sept. 6, 2012). Since that announcement, the euro has steadily strengthened against the dollar. Investors expect financially troubled Spain will request aid under that new program soon.

Analysts in the Houston office of Raymond James & Associates Inc. noted the price spread between Brent and West Texas Intermediate recently has contracted as the outlook for North Sea oil loadings has improved. “According to media reports, the October loading program for North Sea Brent is expected to increase to 135,000 b/d from 100,000 b/d in September,” they said. “North Sea supply has been weak this summer, keeping the Brent contract in steep backwardation. While we acknowledge that a seasonal pick up in North Sea supply could put further downward pressure on the WTI-Brent spread in the near-term, we continue to believe that persistent surge of US oil supply and the resulting logistics bottlenecks will keep the spread wider ($15/bbl) for longer (several years).”

In other news, the Bureau of Safety and Environmental Enforcement said workers had returned to all but 10 of the 596 manned platforms and 1 of the of the 76 rigs in the Gulf of Mexico as of mid-day Sept. 6. Most of those offshore facilities were evacuated ahead of Hurricane Isaac. Government officials reported 42.98% of daily oil production and 21.28% of daily gas production from federal leases in the gulf remain shut in, however. They attributed the slow recovery to storm damage at onshore processing facilities.

US inventories

The Energy Information Administration reported the injection of 28 bcf of natural gas into US underground storage in the week ended Aug. 31, well below Wall Street’s consensus for a 33 bcf addition. That increased working gas in storage to 3.4 tcf, up 395 bcf from the comparable period in 2011 and 329 bcf above the 5-year average.

EIA reported commercial US crude inventories fell 7.4 million bbl to 357.1 million bbl in the same week, out-stripping Wall Street’s expectation of a 5 million bbl drop. Gasoline stocks continued falling, down 2.3 million bbl to 198.9 million bbl, with both finished gasoline and blending components in decline. Analysts were expecting a draw of 3 million bbl. Distillate fuel inventories increased 1 million bbl to 127.1 million bbl vs. market anticipation of a 1.6 million bbl draw but remained below average for the period.

The American Petroleum Institute earlier reported crude stocks fell 7.2 million bbl to 359.3 million bbl in that same week, with gasoline inventories down 2.3 million bbl to 201.8 million bbl. It said distillate fuel stocks dropped 132,000 bbl to 126.4 million bbl (OGJ Online, Sept. 6, 2012).

Energy prices

The October contract for benchmark US light, sweet crudes advanced 17¢ to $95.53/bbl Sept. 6 on the New York Mercantile Exchange. The November contract increased 16¢ to $95.85/bbl. On the US spot market, WTI at Cushing, Okla., followed the front-month futures contract up 17¢ to $95.53/bbl.

Heating oil for October delivery was reported up 2.49¢ to $3.14/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 4.12¢ to $2.99/gal.

The October natural gas contract continued its decline, down 1.9¢ to $2.78/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 3.6¢ to $2.84/MMbtu.

In London, the October IPE contract for North Sea Brent gained 40¢ to $113.49/bbl. Gas oil for September escalated $9.25 to $990.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 55¢ to $111.20/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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