Crude oil futures prices continued to make modest gains while the front-month natural gas contract maintained a five-session rally, escalating 5% Oct. 1 in the New York market on forecasts for cold weather in the central US in coming weeks.
In Houston, analysts at Raymond James & Associates Inc. reported a “rosier” economic outlook with the US Institute for Supply Management (ISM) manufacturing index rising faster than expected, driving broader markets upward. Energy indices also improved with the Oil Service Index up 0.1% and the SIG Oil Exploration & Production Index posting a solid 1.1% gain.
Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “Up until the release of the US ISM manufacturing numbers, oil markets benefited from the euro gaining ground against the dollar. The morning’s Euro-zone PMI readings, although only marginally better than expectations, gave market sentiment a boost. However, once the much better-than-expected US data came out (51.5 compared to a consensus of 49.7), after an initial rally we saw crude oil prices promptly fall and entered a downward trend.”
Despite initial reaction to “the obviously positive implications for demand,” Ground said, investors “appeared to switch focus to the possibility that this might weaken the case for extended monetary accommodation” from the US Federal Reserve Bank. He said, “The fact that precious metals (the main beneficiaries of any extensions of central bank liquidity) acted in similar fashion strengthens this assertion. It would appear that it is a consideration of monetary accommodation, rather than demand-supply fundamentals, that is keeping crude oil prices buoyant.”
Ground said, “This, coupled with a positive (or at the very least benign) supply outlook and the extreme length in non-commercial contracts…leaves the market vulnerable to downside. We do, however, contend that any downside will be lessened by the Fed’s promise of liquidity and ongoing geopolitical risks (in particular Iran).”
Meanwhile, Spain is expected to submit a bailout request this week, but Germany is advocating delay in funding that request. “In all likelihood, it seems that Spain might not actually get a full bailout but will instead get aid through the sort of ‘bailout-lite’ facility, which is called the Enhanced Conditions Credit line. Such a move would most likely lift the euro and, via dollar weakness, crude oil.” However, he cautioned the euro likely will strengthen only when Spain makes its request “and not on any anticipation of a request.”
The November and December contracts for benchmark US sweet, light crudes increased 29¢ each to $92.48/bbl and $92.85/bbl, respectively, Oct. 1 on the New York Mercantile Exchange. Once rare, matching price movements for the two front futures contracts have occurred more frequently in recent months. On the US spot market, West Texas Intermediate at Cushing, Okla., maintained its lockstep with the November NYMEX contract, up 29¢ to $92.48/bbl.
However, the new front-month November contract for heating oil dropped 2.34¢ to $3.14/gal on NYMEX. Reformulated stock for oxygenate blending for the same month was unchanged at $2.92/gal.
The November natural gas contract escalated 16¢ to $3.48/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 13.4¢ to $3.19/MMbtu.
In London, the November IPE contract for North Sea Brent lost 20¢ to $112.19/bbl. Gas oil for October increased $1.75 to $982.50/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes decreased 37¢ to $109.31/bbl.
Contact Sam Fletcher at email@example.com.