MARKET WATCH: Oil prices rise moderately; gas prices decline

Oil prices rebound modestly Oct. 25 with front-month crude up 0.4% in the New York market, but natural gas traded down 0.5% on indications Hurricane Sandy will make landfall in the US Northeast early next week, posing no threat to Gulf of Mexico production.

The equity market fluctuated between gains and losses before a late rally ended the session with a small gain. “Investors were largely absorbed with parsing out economic signals from third quarter earnings, but that hasn't proven to be an easy task. Just like economic indicators, which have recently pointed higher with one metric only to point lower with another, thus far earnings haven't given a clear indication concerning the direction of the economy,” said analysts in the Houston office of Raymond James & Associates Inc.

They noted, “Durable goods rose 9.9% in September, but the uptick was largely the result of civilian aircraft orders. Meanwhile, pending home sales came in below expectations, and unemployment claims were modestly lower.”

However, Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “Overnight the complex came under pressure as fears of weakening demand amid increasing supply returned to the market.”

He reported, “This morning ongoing production disruptions in the North Sea, together with reports of clashes in Syria despite the ceasefire agreement [for the Muslim holiday of Eid al-Adha] have pushed Brent higher. West Texas Intermediate also benefitted, although only marginally. Uncertainty over Hurricane Sandy’s path is capping any support for WTI from this perspective.”

Despite modest gains in early trading Oct. 26, Ground said, “The market clearly lacks the impetus for a sustained upward move. Participants are most likely cautious ahead of today’s US gross domestic product numbers. It is difficult to call the oil market’s reaction to the GDP data, given that an improvement can be read as both a positive for real demand for crude oil, but also as a negative for investment demand in terms of its implications for the Federal Reserve System’s open-ended easing program. However, given the excessive length in the futures market, to our mind participants would be more prone to negative interpretations and a selloff than to a rally on good news.”

The US Department of Commerce subsequently announced the US economy grew at annual rate of 2% during the third quarter due to increased spending by both consumers and the federal government. That was up from a 1.3% increase in the second quarter and from analysts' consensus for 1.8% growth. That helped boost trading activity in the broader market, which earlier was hesitant because of weak earnings, the Associated Press reported.

Gas storage

On a weather adjusted basis, the latest report on natural gas in US underground storage “implies that we are 2 bcfd tighter compared with last year, and we have been averaging 2.7 bcfd tighter over the past 4 weeks,” Raymond James analyst said. “The run-up in gas prices near the $3.50/Mcf level has led to a reversal of some coal-to-gas switching and eased the tightness in the gas markets. However, we expect storage to peak at a record 3.95 tcf but below maximum storage capacity. With more normal weather patterns compared with last year, this has helped put the market in relative equilibrium, but given higher gas prices, we believe switching levels should trend downward through the rest of the year and into early 2013.”

The Energy Information Administration reported the injection of 67 bcf of gas into US storage in the week ended Oct. 19, matching Wall Street’s consensus and raising working gas in storage to 3.843 tcf. US gas storage is now 153 bcf above year-ago levels and 251 bcf above the 5-year average (OGJ Online, Oct. 25, 2012).

Energy prices

The December contract for benchmark US light, sweet crudes regained 32¢ to $86.05/bbl Oct. 25 on the New York Mercantile Exchange. The January contract got back 31¢ to $86.60/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 32¢ to $86.05/bbl.

Heating oil for November delivery increased 2.27¢ to $3.06/gal on NYMEX. Reformulated stock for oxygenate blending for the same month escalated 7.34¢ to $2.68/gal.

The November natural gas contract continued its decline, down 1.6¢ to $3.43/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gave back much of its gain from the previous session, dropping 7¢ to $3.36/MMbtu.

In London, the December IPE contract for North Sea Brent took back 64¢ to $108.49/bbl. Gas oil for November gained $1 to $958/tonne.

The Vienna office of the Organization of Petroleum Exporting Countries remained closed Oct. 26 with no updates on the basket price of its 12 benchmark crudes.

Contact Sam Fletcher at samf@ogjonline.com.

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