MARKET WATCH: Oil prices rebound as dollar weakens

Aug. 28, 2009
Energy prices generally increased Aug. 27, recouping some of the losses from the previous two sessions in the New York market, as the US dollar dropped to its lowest value in weeks and the equities market rebounded.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 28 -- Energy prices generally increased Aug. 27, recouping some of the losses from the previous two sessions in the New York market, as the US dollar dropped to its lowest value in weeks and the equities market rebounded.

The price of crude “has shown as little conviction to follow through below $70/bbl as to follow through above $75/bbl,” said Olivier Jakob at Petromatrix, Zug, Switzerland. He said, “From equity to currencies to oil, it seems that the focus of all markets is the lack of liquidity linked to holidays. In that environment, ranges are hard to break.”

The rebound might lead crude to retest the $75/bbl level, said analysts at Pritchard Capital Partners LLC in New Orleans. “The dollar weakened on suggestions the current administration would institute a ‘cash for appliances’ program to follow the successful ‘cash for clunkers’ program,” they said. “The various stimulus programs highlight the government’s willingness to expand the federal balance sheet, which leads to pressure on the dollar. To reignite the energy complex, the E&P Index and Oil Service Index, crude will need to break $75/bbl, and to do that the dollar probably needs to trade lower.”

Jakob said, “The concern in the global economic picture is that while there has been some improvement in manufacturing activity, it is not yet certain that it will be followed by sustained consumer spending.” He said, “With the European consumer already filled up on heating oil stocks and large layers of distillate stocks afloat on the water, the solver to this overhang would be a strong reduction of refinery runs in front of the winter. However, with the rebounding industrial demand, any strong reduction of refinery runs could seriously tighten the naphtha markets.”

Natural gas attempted to rally late in the session despite the Energy Information Administration’s report of a larger-than-expected 54-bcf injection of gas into US underground storage in the week ended Aug. 21, said analysts in the Houston office of Raymond James & Associates Inc. That boosted the amount of working gas in storage to 3.26 tcf, up by 516 bcf from a year ago and by 500 bcf above the 5-year average.

Energy prices
The October contract for benchmark US light, sweet crudes gained $1.06 to $72.49/bbl Aug. 27 on the New York Mercantile Exchange. The November contract increased 95¢ to $73.14/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.06 to $72.49/bbl. Heating oil for September inched up 0.72¢ to $1.81/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month climbed 4.88¢ to $2.03/gal.

The September natural gas contract dropped to $2.69/MMbtu in intraday trading—“a new low for the commodity,” said Pritchard Capital Partners—before closing at $2.84/MMbtu, down 6.7¢ for the day on NYMEX. On the US spot market, gas at Henry Hub, La., lost 4.5¢ to $2.72/MMbtu.

In London, the October IPE contract for North Sea Brent crude increased 86¢ to $72.51/bbl. Gas oil for September gained 25¢ to $581/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dipped 8¢ to $70.36/bbl on Aug. 27.

Contact Sam Fletcher at [email protected].