Sam Fletcher
OGJ Senior Writer
HOUSTON, July 14 -- Energy prices continued to fall July 13, with crude dropping to an 8-week low and natural gas at its lowest point since late April on the New York market.
Fears among traders of declining demand for energy around the world are weighing down energy prices. “Yes, global demand is lower than a year ago,” said Olivier Jakob at Petromatrix, Zug, Switzerland. However, he added, “So is the supply from the Organization of Petroleum Exporting Countries.
The recent fire-sale of US benchmark crude in the futures market “is going against the currents of global markets,” said Jakob. “The US equities are holding and rebounding on the support line, the dollar index has absolutely lost its momentum, but much more importantly the time structure on crude oil is starting to shift,” he said.
Jakob noted, “The prompt contango on [North Sea] Brent has disappeared, and Brent is now flirting with a small backwardation for the first time since May 2008.” That change “is helped by the strong level of maintenance on the North Sea platforms, but the crude oil strength has really come from the East through the move of Middle Eastern crude oil from deep discount towards parity with Atlantic Basin crude,” he said. “The Eastern pull on the Atlantic Basin has now moved Brent at a premium to West Texas Intermediate, and this should start to gradually lower the supplies to the US.”
In New Orleans, analysts at Pritchard Capital Partners LLC said, “The market is still trying to come to grips with how much of the rally in crude from $35/bbl to $70/bbl was driven by speculators and how much by actual demand.”
The US Commodity Futures Trading Commission’s July 7 Trader Commitment Report showed “noncommercial” investors held 7.4% of the long open interest and 4.2% of the short open interest in the New York market’s front-month contract for sweet, light crude. “At face value when you look at the absolute percentage held by ‘noncommercial investors,’ it seems relatively insignificant,” said Pritchard Capital Partners. “The problem with the report is that some investors receive a commercial designation for hedging purposes when in reality their commercial interest in crude is for trading profit only. Therefore, if some investors lost their commercial designation the ‘noncommercial’ percent of the open interest would increase, but determining by how much is difficult because certain investors are ‘hiding’ in the commercial category. However, the CFTC report is the best and possibly only source of information in this area.”
In other news, the Nigerian government freed Henry Okah, jailed leader of the militant Movement for the Emancipation of the Niger Delta (MEND). The government also withdrew charges against him for treason and gun-running.
Okah’s release was one of the conditions demanded by MEND for ending its armed rebellion. However, Jakob said July 14, “Given the unprecedented nature of yesterday’s attack on the Lagos oil product terminal (main manifold said to have been destroyed) we will wait a little more before discounting the Nigerian risk since the militants are gaining the upper hand.”
OPEC’s outlook
In its monthly report July 14, OPEC forecast world economic growth of 2.3% in 2010 in a recovery from the 1.4% contraction seen for this year. Among member nations of the Organization for Economic Cooperation and Development, overall economic growth is expected to remain “anemic” at 0.7%. That is a slower recovery pace than seen after previous recessions. But it reflects “the depth and complexity of the current downturn,” OPEC said.
The US is expected to experience 1.2% economic growth in 2010, compared with a 2009 decline of 2.7%. Japan’s growth should increase 0.9%. However, OPEC expects the Euro-zone economy to decline 0.4% and remained “mired in recession well into 2010.”
OPEC said, “After 2 consecutive years of negative growth, global demand [for oil] next year is projected to show a moderate increase of 500,000 b/d. Non-OECD countries are seen making up the bulk of the increase, growing by 800,000 b/d.”
Demand for OPEC crude is estimated to average 28.5 million b/d in 2009, a decline of 2.3 million b/d from the previous year. In 2010, demand for OPEC crude is expected to dip to an average 28.1 million b/d. OPEC expects non-OPEC supply to increase by 300,000 b/d to 50.9 million b/d in 2010. Brazil, the US, Azerbaijan, Kazakhstan, Canada, China, and India are seen to be the main contributors to next year’s growth as Mexico, the UK, Norway, and Russia experience the largest declines.
OPEC’s basket of 12 reference crudes surged $11.38/bbl to an average $68.36/bbl in June, the highest monthly average since October. But in July, the basket price has lost ground as deepening unemployment rates reversed some of the more hopeful sentiments in the market. The average price for OPEC’s basket dropped 20¢ to $59.66/bbl on July 13.
Energy prices
The August contract for benchmark US sweet, light crudes dropped 20¢ to $59.69 July 13 on the New York Mercantile Exchange. The September contract lost 32¢ to $60.56/bbl. On the US spot market, WTI at Cushing, Okla., was down 20¢ to $59.69/bbl. Heating oil for August declined 2.97¢ to $1.50/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month lost 1.11¢ to $1.64/gal.
The August natural gas contract fell 11¢ to $3.26/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 4.5¢ to $3.19/MMbtu. “The upper Midwest and Northeast continue to experience below-average temperatures that are suppressing electricity demand and accordingly natural gas demand,” said analysts in the Houston office of Raymond James & Associates Inc.
In London, the August IPE contract for North Sea Brent crude gained 17¢ to $60.69/bbl. Gas oil for August dropped $2.25 to $483.50/tonne.
Contact Sam Fletcher at [email protected].
Rystad Energy.
