MARKET WATCH: Oil prices regain most of previous loss

Oil prices bounced back June 3, recouping much of the previous session’s losses as they followed the rise of broader markets, while natural gas prices increased marginally.

“Crude gained 1.6% on the continued [Federal Reserve Bank] stimulus expectations while natural gas inched higher, up 0.1%, marking the end of a five-session losing streak,” said analysts in the Houston office of Raymond James & Associates Inc. The Oil Service Index and the SIG Oil Exploration & Production Index followed crude higher, up 0.5% and 1%, respectively.

Losses in oil markets on June 3 in reaction to the unsurprising decision by ministers of the Organization of Petroleum Exporting Countries last week to maintain production quotas were “overdone,” necessitating a correction. “However, given our outlook for pedestrian oil demand growth (in particular from Asia), and our concerns over growing supply and the glut of inventory in the US, we would not extrapolate further sustained and significant gains from these levels over the near term,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

“The muted reaction to yesterday’s [US Institute for Supply Management] manufacturing number (weaker-than-expected and below the 50-threshold) to our mind reveals the two forces, in relation to the state of the US economy, working in opposing directions on oil prices,” Ground said. “On the one hand, we have expectations of a stronger US economy translating into stronger real oil demand—a positive for prices. And, on the other hand, a still-fragile US economy raises expectations that the Federal Reserve Bank will have to stay the quantitative easing course for longer, which provides support for oil prices from liquidity-fueled speculative activity. In addition, heightened expectations of maintained quantitative easing also weigh on the dollar (as was clearly evident yesterday), providing added support to dollar-denominated oil prices.”

Energy prices

The July contract for benchmark US sweet, light crudes jumped $1.48 to $93.45/bbl June 3 on the New York Mercantile Exchange. The August contract escalated $1.46 to $93.67/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.48 to $93.45/bbl.

Heating oil for July delivery regained 5.2¢ to $2.83/gal on NYMEX. Reformulated stock for oxygenate blending for the same month recaptured 3.02¢ to $2.79/gal.

The July natural gas contract inched up 0.7¢ to $3.99/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 0.4¢ but finished essentially unchanged at a rounded $4/MMbtu.

In London, the July IPE contract for North Sea Brent rose $1.67 to $102.06/bbl. Gas oil for June was up $9.50 to $854.25/tonne.

The average price for OPEC’s basket of 12 benchmark crudes increased 10¢ to $98.88/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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