Sam Fletcher
Senior Writer
HOUSTON, Aug. 1 -- Continuing its recent trend of up one day and down the next, energy futures prices fell July 31, eliminating most of the gains from the previous session's rally, as the US Commerce Department reported the US economy grew a weaker-than-expected 1.9% in the second quarter from year-ago levels.
Government officials also revised first-quarter growth down to 0.9% from an earlier estimate of 1%. Another revision turned the 2007 fourth quarter into a 0.2% contraction from a previously estimated 0.6% gain.
"Oil prices fell more then 2% [July 31] marking the worst month for oil (in percentage terms) since December 2004, though oil is still up 29% year-to-date," said analysts in the Houston office of Raymond James & Associates Inc.
The Wall Street Journal reported Aug. 1 that front-month crude lost a total of $15.92/bbl during July, the largest monthly dollar loss since this commodity began trading on the New York Mercantile Exchange.
Raymond James analysts said, "Oil prices, and consequently the energy markets, continue to be spooked by demand erosion…. US gasoline demand is down an alarming 3.5% this year, though the global demand picture still looks brighter. In slightly better news, natural gas fell a relatively modest 1.4% following a bullish inventory update."
Olivier Jakob at Petromatrix, Zug, Switzerland, said, "All in all it is difficult to find the catalyst to justify a move to new [price] highs, and following the dismal commodity performance during July, the risk is increasing to have passive retail investors retrieving what is left of their year-to-date commodity returns."
However, Paul Horsnell, Barclays Capital Inc., London, said the oil market has been "behaving fairly rationally and efficiently" in recent months. "Having first gone through something of a short-run overshooting of prices in the wake of supportive news flow and some temporary market dynamics, an efficient correction has been made. The move back down in prices has been orderly, not a bubble bursting, and is a gentle adjustment back to a price range whose potential long-term equilibrium has not really been subject to much in the way of investigation and testing."
He said, "The potential trading range for prices over the next month remains fairly large, given the likelihood for volatility to be generated out of political developments as well as economic and oil market data flow."
In other news, the Independence Hub in the Gulf of Mexico was shut in July 31 to check recent repairs and is expected to be offline 4 days before ramping back up to previous through-put levels of 800 MMcfd of gas.
Energy prices
The September contract for benchmark US light, sweet crudes was volatile, trading at $122.71-127.88/bbl July 31 before closing at $124.08/bbl, down $2.69 for the day on NYMEX. The October contract also lost $2.69, to $124.51/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., mirrored the September futures contract, down $2.69 to $124.08/bbl. The soon-to-expire August heating oil contract dropped 8.16¢ to $3.49/gal on NYMEX. RBOB for the same month lost 8.71¢ to $3.05/gal.
The September natural gas contract fell 12.9¢ to $9.12/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 21.5¢ to $9.23/MMbtu. The front-month gas contract staged a brief rally immediately following the Energy Information Administration's report of the injection of 65 bcf of natural gas in US underground storage in the week ended July 25, a little below Wall Street's consensus of 70 bcf and down from injections of 84 bcf the prior week and 77 bcf in the same period last year.
Gas futures prices soon began to slide from the rally's peak. Still, said Pritchard Capital analysts "Bears didn't quite get the price collapse of the prior two trading sessions when inventory data was released." US gas storage now approaches 2.5 tcf, down 357 bcf from year-ago levels and just 12 bcf below the 5-year average.
Temperatures last week were 28% warmer than last year, 8.1% warmer than the 10-year average, and 7.9% warmer than the prior week. With 45% of the normal summer season behind us, this summer has been 12% warmer than normal and last year. Still, said Michael C. Schmitz, Banc of America Securities LLC, New York, "We do not believe that this week's injection reflects any change in supply or demand fundamentals from recent weeks."
Meanwhile, EIA also reported total US gas production in the Lower 48 was up 8.9% through May this year, with May gas production up 8.3% over the same month in 2007.
In London, the September IPE contract for North Sea Brent crude lost $3.12 to $123.98/bbl. August gas oil continued its decline, down $4 to $1,127.75/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes gained $1.60 to $122.48/bbl July 31.
Contact Sam Fletcher at [email protected].
