MARKET WATCH: Energy prices slip lower, but crude gains for the week

Energy prices generally slipped lower June 28 with front-month crude ending a 4-day rally that boosted its price 3% for the week in the New York futures market. Natural gas continued its recent slide, falling 6% last week.

“In a choppy end to the second quarter, the stock market in the last few weeks has been predominantly driven by the words of the Federal Reserve,” said analysts in the Houston office of Raymond James & Associates Inc. “Following on a week in which Fed Chairman Ben Bernanke sent stocks plummeting after announcing possible plans for the feared but predictable ‘taper’ of [the Fed’s] bond-buying program, stocks were once again under the spell of central bankers last week, fortunately this time to the positive side. Comments supportive of sustained accommodative interest rates from the Bank of England, the European Central Bank's [President] Mario Draghi, and several Federal Reserve officials drove the Standard & Poor’s 500 Index to rally by 1% during the week, recovering some of the previous week's losses.” The SIG Oil Exploration & Production Index closed flat while the Oil Service Index also gained 1%.

The Raymond James average price forecasts for 2014 are $85/bbl for North Sea Brent and $70/bbl for West Texas Intermediate—“the price levels at which we think the industry would begin to feel serious pain,” analysts said. “In the case of WTI, the pain would be felt by US onshore producers. Brent, of course, has a much broader footprint, being relevant for both the Organization of Petroleum Exporting Countries and non-OPEC producers outside North America. But what about the Canadian oil sands? Given Canada's long-standing status as one of the top non-OPEC supply growth drivers, along with the relatively high all-in cost structure of some oil sands projects, will a sharp oil price decline cause the industry to retrench? The short answer is: no.”

According to Raymond James analysts, growth in oil sands production is a sustainable trend for the foreseeable future. “The oil price bottom we project for 2014, as well as the generally flat prices ($95 Brent and $85 WTI on average) we envision over the subsequent 3-5 years, would have minimal effect on the growth curve. While not bullish from a global supply-demand standpoint, our expectations for oil sands expansion show the resilience of the Canadian energy complex,” they said.

Energy prices

The August contract for benchmark US light, sweet crudes dropped 49¢ to $96.56/bbl June 28 on the New York Mercantile Exchange. The September contract lost 45¢ to $96.44/bbl. On the US spot market, WTI at Cushing, Okla., also was down 49¢ to $96.56/bbl.

The expiring July contract for heating oil dipped 0.94¢ to $2.88/gal on NYMEX. Reformulated stock for oxygenate blending for the same month inched up 0.94¢ to $2.75/gal.

The August natural gas contract declined 1.7¢ to $3.57/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 17.5¢ to $3.56/MMbtu.

In London, the August IPE contract for Brent was down 66¢ to $102.16/bbl. Gas oil for July increased 50¢ to $883.25/tonne.

The average price for OPEC’s basket of 12 benchmark crudes rose 41¢ to $100.78/bbl. Halfway through this year, OPEC’s basket price has averaged $105.09/bbl, down from an average $109.45/bbl for all of 2012.

Contact Sam Fletcher at samf@ogjonline.com.

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