MARKET WATCH: Oil prices decline in lackluster market

Energy prices declined May 10 with the benchmark front-month crude contract continuing its retreat in the New York futures market. For the week as a whole, crude traded flat while natural gas fell 3% on a bearish injection report.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “Apart from a growing optimism over the US oil demand (especially after the better-than-expected nonfarm payrolls data), oil markets received some support due to an escalation in geopolitical tensions over the week ended May 7 as Israel entered into the Syrian civil conflict.

“The absence of a further escalation in Middle East tensions has since seen the geopolitical risk premium ease off. Unless significant oil producers are drawn into a conflict, any geopolitical-induced buoyancy should fade as the uncertainty subsides,” he said.

According to the latest data from the Commodity Futures Trading Commission, net speculative length for West Texas Intermediate rose 12.9 million bbl “as investors aggressively unwound their short positions (15 million bbl) when downside risks eased. Nevertheless, there was no desire to add to speculative longs (in fact, longs slipped 2.1 million bbl)—perhaps like us, the market is feeling that upside for the WTI contract is also becoming stretched,” said Ground.

It was “largely a quiet week vis-à-vis macro news, but the real bombshell came after market close on [May 10], when The Wall Street Journal published an article detailing the Federal Reserve Bank's exit strategy from its $85 billion/month bond-buying program,” said analysts in the Houston office of Raymond James & Associates Inc. “The question investors will now have to tackle is: ‘Is the party over, or can it keep going without the quantitative easing Kool-Aid?’”

There were various media reports Fed executives are considering ending the quantitative easing program to stimulate the US economy, perhaps by the end of this year.

Earlier, equity markets pushed higher with the Dow Jones Industrial Average closing “above the symbolic 15,000 mark for the first time.” Raymond James analysts said, “For now, though, the Dow's recent streak of 87 days without 3 consecutive days of losses (the longest such streak since 1958) appears to be in jeopardy.”

The SIG Oil Exploration & Production Index and the Oil Service Index “joined in the exuberant, short-squeeze-infused market sentiment with gains of 3% and 1%, respectively,” they said. “This morning, crude and broader market futures are trading in the red, as expected given the Fed ‘unwinding’ news, while gas is flat.”

Energy prices

The June contract for benchmark US light, sweet crudes declined 35¢ to $96.04/bbl May 10 on the New York Mercantile Exchange. The July contract decreased 37¢ to $96.29/bbl. On the US spot market, WTI at Cushing, Okla., was down 35¢ to $96.04/bbl.

Heating oil for June delivery lost 3.04¢ to $2.91/gal on NYMEX. Reformulated stock for oxygenate blending for the same month retreated 2.48¢ to $2.86/gal.

The June natural gas contract dropped 7.3¢ to $3.91/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 1.7¢, also closing at a rounded $3.91/MMbtu.

In London, the June IPE contract for North Sea Brent fell 56¢ to $103.91/bbl. Gas oil for May was unchanged at $867.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 60¢ to $101.07/bbl. So far this year, OPEC’s basket price has averaged $106.76/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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