Sam Fletcher
OGJ Senior Writer
HOUSTON, Aug. 17 -- The front-month crude contract dropped 4.4% to less than $68/bbl Aug. 14 on the New York market as consumer confidence declined and the US dollar strengthened.
“After 8 days of stand-still action, West Texas Intermediate finally had a volatility outbreak last Friday and finished the week $3.42/bbl lower. North Sea Brent (October) was $2.60/bbl lower, Reformulated blend stock for oxygenate blending (RBOB) was $2.94/bbl lower, and heating oil was down $2.99/bbl. Natural gas lost 11.9%,” said Olivier Jakob at Petromatrix, Zug, Switzerland.
Oil and natural gas prices continued to fall in early trading Aug. 17, with crude down 2.2% and gas down 2.5% prior to the opening bell in New York. “It could be a tough day for energy stocks across the board, as the Asian markets have already posted significant declines during the trading day,” said analysts in the Houston office of Raymond James & Associates Inc. “As storm activity began to pick up over the Atlantic this weekend, it remains doubtful that Hurricane Bill will make landfall in the US. If Hurricane Bill does reach the US, it will most likely hit the east coast and leave key production areas in the Gulf of Mexico unscathed,” they said.
The Reuters and University of Michigan surveys of consumers showed the preliminary index of confidence decreased to 63.2, down from 66 in July, and “well below the median expectation of an increase to 69; although compared to a year ago, consumer prices are down 2.1%, the biggest 12-month decrease since 1950,” said analysts at Pritchard Capital Partners LLC, New Orleans. “A stronger US dollar vs. the euro pressured investors using the commodity as an inflation hedge.”
Pritchard Capital Partners said: “Oil prices had closed higher over the past 4 weeks on speculation fuel demand would recover as the global economy showed signs of improvement, but US crude supplies remain 36.4 million bbl above their 5-year average and US daily fuel consumption was down 3%, averaging 18.9 million bbl over the past 4 weeks from its 2008 levels. The weak economic data also pressured gasoline futures, which fell 4.3%, the most in 5 weeks, after rising 30% over the past month; it is unlikely the 3.6% increase in gasoline stockpiles year-over-year will shrink as peak driving season nears a close. For technical traders, crude has been unable to rise above its 8-month high of $73.38/bbl reached on June 30, even though it has crossed $70/bbl every trading day this month; if crude is unable to break the $73/bbl resistance, it could retrace toward $60/bbl.”
Natural gas
As for natural gas, Prichard Capital analysts said, “Demand appears even more unlikely to reach equilibrium this year given the abundant supply. There have been no incremental shut-in announcements, industrial demand remains weak, and rigs continue to drill as evidenced by Baker Hughes Inc. showing 5 gas rigs went back to work last week, its fourth consecutive weekly increase, indicating injection levels may continue to surpass their 5-year averages as they have over the past 5 weeks” (OGJ Online, Aug. 14, 2009).
Meanwhile, Raymond James analysts reported, “Public company data says US gas supply is starting to fall, but not as fast as many think. Over the past few months the US gas market has become markedly tighter.” Results from a second-quarter US gas production survey of public companies suggest “that US gas supply has finally begun to roll over, but at a very slow pace,” they said. While the Energy Information Administration’s highly visible EIA-914 monthly gas production report shows hurricane-adjusted domestic production is down 2 bcfd from a fourth quarter of 2008 peak, public company data indicate hurricane-adjusted US gas supply is down only 500 MMcfd from a first quarter of 2009 peak. “This is a big difference in US gas supply trends and has profound implications for gas prices over the next 6 months,” Raymond James analysts said.
Raymond James also reported “takeaways” from Enercom Inc.’s recent annual oil and gas conference in Denver. “First, investors’ questions have clearly shifted from ‘got Haynesville?’ to ‘got Bakken?’ It should come as no surprise that with the huge oil-gas price discrepancy the oily Bakken probably generates the highest rate of returns of onshore wells in the US,” they said.
“Second, producers are very nervous about upcoming borrowing base redeterminations. The big question is, do you enter into new 2010 and 2011 hedges to support your borrowing base, essentially locking in very low gas prices, or do you leave yourself exposed to the banks’ extremely conservative price deck? In our coverage universe only 35% of 2010's forecasted production is hedged. Look for that number to increase in late September and early October,” said Raymond James. “Third, if you want to get a divestiture done you better have some Permian basin sitting around. It is going to be very tough to get a natural gas deal done in the current environment.”
Energy prices
The September contract for benchmark US light, sweet crudes traded at $67.12-71.60/bbl Aug. 14 before closing at $67.51/bbl, down $3.01 for the day on the New York Mercantile Exchange. The October contract dropped $2.88 to $69.25/bbl. Contracts for subsequent months posted losses but remained in contango through at least August 2011. On the US spot market, WTI at Cushing, Okla., was down $3.01 to $67.51/bbl. Heating oil for September delivery declined 6.18¢ to $1.84/gal on NYMEX. RBOB for the same month lost 8.12¢ to $1.94/gal.
The September natural gas contract dropped 9.8¢ to $3.24/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 14.5¢ to $3.20/MMbtu.
In London, the September IPE contract for North Sea Brent crude was down $1.07 to $72.41/MMbtu. Gas oil for September lost $17.75 to $590.25/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 reference crudes fell $1.08 to $71.14/bbl on Aug. 14.
Contact Sam Fletcher at [email protected].
