MARKET WATCH: Oil price decline slows ahead of Memorial Day weekend

The recent decline in oil prices slowed to a trickle in volatile trading May 23 ahead of the extended Memorial Day holiday weekend that marks the start of the summer driving season in the US.

“Heading into the long weekend, traders are speculating that domestic fuel inventories are more than adequate,” said analysts in the Houston office of Raymond James & Associates Inc. “Factor in continuing concerns that the Federal Reserve Bank could pare back monetary easing before yearend, and there weren’t many reasons to be bullish yesterday.”

Barclays Capital Commodities Research analysts said, “We expect Brent to drift slightly lower in the short term given a lack of fundamental impetus but still expect a retracement as the tail end of the second quarter approaches.” Meanwhile, they reported natural gas futures prices “rallied across the forward curve this week” after the Department of Energy authorized Freeport LNG Development LP to export 1.4 bcfd of LNG to countries that do not have free trade agreements with the US (OGJ Online, May 17, 2013). They said prices of gas futures contracts for 2017-20 should escalate with government approval of other LNG export projects.

The equity market declined for a second consecutive session and appeared on track for its first weekly loss in a month. Corporate energy stocks were mixed, with the SIG Oil Exploration & Production Index up 0.6% and the Oil Service Index down 0.3%. The front-month natural gas futures market increased 1.8% in the New York market.

US inventories

The Energy Information Administration reported the injection of 89 bcf of natural gas into US underground storage in the week ended May 17, well below Wall Street’s consensus for 92 bcf input. It increased working gas in storage to 2.053 tcf, down 680 bcf from year-ago level and 84 bcf below the 5-year average (OGJ Online, May 23, 2013).

Raymond James analysts said, “With the year-to-year storage deficit decreasing to 680 bcf, gas prices have fallen from the highs experienced in mid-April and have spurred on some gas demand.” However, they reiterated, “Gas prices need to stay up $4/Mcf in order to balance the market.”

Energy prices

The July contract for benchmark US light, sweet crudes dipped 3¢ to $94.25/bbl May 23 on the New York Mercantile Exchange. The August contract slipped 4¢ to $94.42/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 3¢ to $94.25/bbl.

Heating oil for June delivery declined 1.36¢ to $2.86/gal on NYMEX. Reformulated stock for oxygenate blending for the same month inched up 0.87¢ to $2.83/gal.

The June natural gas contract escalated 7.5¢ to $4.26/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., decreased 2.8¢ to $4.13/MMbtu.

In London, the July IPE contract for North Sea Brent lost 16¢ to $102.44/bbl. Gas oil for June fell $17.25 to $849.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down $1.33 to $99.03/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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