MARKET WATCH: Crude prices slip in mixed New York market

Front-month crude dipped 0.7% May 9 in the New York market amid concerns over falling demand and rising supply despite a bullish report on commercial US oil inventories that boosted prices in the previous session.

In the London market, however, North Sea Brent “managed to escape the uncertainty surrounding China’s economy and achieved a mild gain,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. That uncertainty “was sparked by many market participants questioning the improvement in this week’s Chinese trade data,” he said.

In addition, analysts in the Houston office of Raymond James & Associates Inc. reported, “The dollar strengthened against the euro after the Labor Department showed jobless claims dropped to a 5-year low. Not so great for energy investors….” The UK “also added pressure by failing to emulate the European Central Bank with a widely anticipated stimulus boost. Planned asset purchases were held in line at $582 billion by the Bank of England's Monetary Policy Committee,” they said.

Broader markets also were down with the Standard & Poor’s 500 Index slipping 0.4%. The SIG Oil Exploration & Production Index and the Oil Service Index were down 0.2% each.

Natural gas

The price of the front-month natural gas futures contract in New York was “essentially unchanged despite a bearish storage report,” Raymond James analysts said. The Energy Information Administration reported the injection of 88 bcf of natural gas into US underground storage in the week ended May 3, up from Wall Street’s consensus for an 86 bcf increase. That raised working gas in storage to 1.865 tcf, down 737 bcf from the comparable year-ago level and 99 bcf below the 5-year average.

If the latest gas data are “a sign for what's to come for gas prices, then we may be in for a rather difficult summer,” Raymond James analysts reported. “Weather has finally turned the corner and is trending again below normal. With current natural gas storage inventories 737 bcf below last year, we need to run 4 bcfd looser in order to refill storage inventories to the 3.8-3.9 tcf level once injection season is over.”

To do that, they said, “Higher natural gas prices are required to spur additional gas to coal switching, which has clearly started to take effect given this week's 5.7 bcfd of looseness. Additionally, we continue to believe that supply will again ramp up in the back half of the year as supply constraints continue to ease. Ultimately there are a number of levers that can be pulled in order to balance the gas market, most of which will require higher gas prices. However, the biggest lever of them all is Mother Nature, and unfortunately she can't be bought. Should weather not cooperate this summer, we could be in for a rough few months.”

Energy prices

The June contract for benchmark US light, sweet crudes dropped 23¢ to $96.39/bbl May 9 on the New York Mercantile Exchange. The July contract gave up 19¢ to $96.66/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 23¢ to $96.39/bbl.

However, heating oil for June delivery increased 2.19¢ to $2.94/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 3.13¢ to $2.89/gal.

The June natural gas contract inched up 0.5¢ but closed essentially unchanged at a rounded $3.98 MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 1.9¢ to $3.89/MMbtu.

In London, the June IPE contract for Brent increased 13¢ to $3.89/bbl. Gas oil for May was up $3.75 to $867.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down 44¢ to $101.67/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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