MARKET WATCH: Energy prices undermined by economic worries

Energy prices slumped Apr. 26, following the stock markets down after the Commerce Department reported the US gross domestic product grew 2.5% in the first quarter, falling short of analysts’ outlook for a 3% rise.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “After a strong drop off sparked by the disappointing US GDP numbers, oil markets started pushing higher later in the day—this underscores the dilemma of a market caught between the prospect of weakening growth being bad for real oil demand but being good for liquidity support in that it implies that the Federal Reserve Bank will stay the quantitative easing course for a while longer perhaps.”

The slower-than-expected recovery of the US economy shifted investors toward low-risk government bonds and away from higher risk oil and gas. That fear was enhanced as some companies have fallen short of analysts’ revenue estimates.

 In Houston, however, analysts with Raymond James & Associates Inc. reported, “The broader markets strengthened last week with the Standard & Poor’s 500 Index gaining 1.5% on the back of strong earnings reports from several companies. Thus far through earnings season, 69% of S&P companies have reported better than expected earnings.”

However, they said, “Despite the strength in domestic earnings, the country itself failed to keep pace with expectations.”

Crude had a net 5.3% gain last week on the New York futures market primarily because of a bullish inventory report. Raymond James analysts said, however, “Natural gas prices faced a notable reversal of fortune . . . as the end of winter weather led the front month contract decline of 4.2% during the week.”

Venezuela outlook

In other news, Raymond James analysts said it is “abundantly clear” the election of the late Venezuelan President Hugo Chavez's handpicked successor ensures that country’s “hardline, aggressively nationalistic energy policy will continue long after Chavez's death.”

They said, “This, of course, will keep a lid on Venezuelan oil production by keeping away foreign investment from companies that are understandably fearful of further violations of property rights. But the effect of ‘chavismo’ is even more widespread than that. Venezuela plays a famously hawkish role within the Organization of Petroleum Exporting Countries in close alliance with Iran.”

On a regional level, Raymond James analysts said, “Venezuelan policies have spread to Ecuador, Bolivia, and, most recently, Argentina. Against this backdrop of hyper-politicized mismanagement, aggregate Latin American oil production has exhibited zero growth over the past decade, and we see no end to the stagnation. Brazil is a relatively friendlier place for energy investment, but it has its own share of policies that exhibit economic nationalism, one of the reasons for its recent flat-lining of oil production.”

Energy prices

The June contract for benchmark US light, sweet crudes lost 64¢ to $93/bbl Apr. 26 on the New York Mercantile Exchange. The July contract retreated 66¢ to $93.25/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 64¢ to $93/bbl.

Heating oil for May delivery dipped 0.05¢ but closed essentially unchanged at a rounded $2.90/gal on NYMEX. Reformulated stock for oxygenate blending for the same month, however, increased 2.31¢ to $2.83/gal.

The May natural gas contract declined 1.5¢ to $4.15/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 6.9¢ to $4.11/MMbtu.

In London, the June IPE contract for North Sea Brent decreased 25¢ to $103.16/bbl. Gas oil for May was up $1.25 to $858.75/tonne.

The average price for OPEC’s basket of 12 benchmark crudes gained 81¢ to $100.70/bbl. So far this year, OPEC’s basket price has averaged $107.43/bbl, down from $109.45/bbl for all of 2012.

Contact Sam Fletcher at samf@ogjonline.com

 

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