Sam Fletcher
Senior Writer
HOUSTON, May 23 -- Energy prices fell with profit taking May 22 but not before setting a new intraday high of $135.09/bbl in the New York market.
It was the first dip in oil prices in nearly 2 weeks. However, crude prices again rose in overnight electronic trading just prior to the 3-day Memorial Day holiday that marks the unofficial start of the summer driving season in the US. The rebound was triggered by "some new buying related to some struggles to maintain strong Mexican output as well as a sense that non-OPEC crude output would not provide a comfort cushion in the second half of the year," said analysts at Pritchard Capital Partners LLC, New Orleans.
They said, "With prices this high there is terrible nervousness going into [the holiday weekend] that should see lower than usual US demand. There is also a strong technical case to be made for a higher high than the $135 bbl briefly reached yesterday."
Disagreements continued over what's driving the escalation in oil prices. Jeroen van der Veer, chief executive of Royal Dutch Shell PLC, said in a televised interview that energy prices are rising because of market perceptions rather than a supply shortage. He said, "There are no tankers waiting in the Middle East, there are no cars waiting at gasoline stations because they are out of stock. This has to do with psychology in the markets, and you cannot forecast psychology."
However, US Treasury Secretary Henry Paulson said the spike in oil prices is the result of tight supplies and growing global demand, rather than market speculators. Earlier this week, the Senate Judiciary Committee rounded up the "usual suspects"—executives from ExxonMobil, Chevron, Shell Oil, BP America, and ConocoPhillips—for a televised verbal flogging for "what you're doing to us." A House panel took its turn at berating oil executives in a May 23 hearing. Still, industry executives and some politicians are pushing a reluctant Congress to open areas of the US that are now off-limits for oil and gas drilling.
"Democrats argue that drilling the potential reserves on and offshore won't necessarily ease pressure on prices," said analysts in the Houston office of Raymond James & Associates Inc. "New technology and drilling techniques have made the process much more environmentally friendly, but other critics would rather push alternative fuel usage. Stay tuned because the opening of any areas would be bullish for the service space across the entire life cycle of the well."
Meanwhile, there are growing signs that high oil prices are affecting the US economy. Ford Motor Co. said May 22 its expected return to profitability in 2009 likely will not happen because of the sharp drop in sales of gas-guzzling pickup trucks and sport utility vehicles.
That same day the US Federal Highway Administration released its report on traffic volume trends for February showing travel on all US roads and street that month was at the lowest level since 2004. Traffic volume during that month was down 0.4% from a year-ago, following a 1.7% drop in January traffic. "On a longer-term perspective, the 12-month moving average of vehicle miles traveled is showing the first decline (February basis) in 25 years (or since the start of the statistical data)," said Olivier Jakob at Petromatrix, Zug, Switzerland.
Raymond James analysts wondered, "With demand destruction on the minds of investors throughout oil's steady rise from $100/bbl, could $130/bbl be the tipping point? In the US, total petroleum products demand is down 2% this month [vs. a year ago]. However, demand is still growing in developing nations such as China, which reported an eightfold year-over-year increase in April diesel imports." However, they said, "Other developing countries such as Indonesia and India are cautioning that rising crude prices are forcing them to reduce their subsidies—gasoline prices are expected to increase 20% in India and up to 30% in Indonesia."
Energy prices
The July contract for benchmark US light, sweet crudes fell $2.36 to $130.81/bbl May 22 on the New York Mercantile Exchange. The August contract dropped $2.64 to $130.90/bbl. On the US spot market, West Texas Intermediate lost $2.56 to $130.22/bbl. The June contract for reformulated blend stock for oxygenate blending (RBOB) declined by 6.68¢ to $3.33/gal on NYMEX. However, heating oil for the same month continued to advance, up 4.59¢ to $3.95/gal.
The June natural gas contract gained 5.7¢ to $11.70/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., soared by $1.39 to $11.54/MMbtu. "After spiraling lower in Thursday morning trade, June natural gas futures prices reversed course following the Energy Information Administration's 85 bcf natural gas storage injection report for the week ended May 16," said Pritchard Capital analysts. That was barely below the consensus among Wall Street analysts for an injection of 86-87 bcf. "The market's response to the number was perplexing to traders as analyst estimates have rarely come closer to the actual number," the analysts said.
In London, the July IPE contract for North Sea Brent crude hit an intraday high of $135.14/bbl before closing at $130.51/bbl, down $2.19 for the day. The June gas oil contract, however, shot up $19.50 to $1,273/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes gained $3.14 to $127.59/bbl.
Contact Sam Fletcher at [email protected]
