MARKET WATCH: Oil prices drop, gas prices rise

Sept. 24, 2009
Crude prices continued to waffle, closing below $69/bbl Sept. 23 in New York after a Department of Energy agency reported a larger-than-expected drop in US inventories and weaker demand.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 24 -- Crude prices continued to waffle, closing below $69/bbl Sept. 23 in New York after a Department of Energy agency reported a larger-than-expected drop in US inventories and weaker demand.

“Oil prices fell over 4% yesterday as the Dow [Jones Industrial Average] pulled back 81 points,” said analysts in the Houston office of Raymond James & Associates Inc. “With oil down big, energy stocks underperformed as both the [S&P Oil & Gas Exploration & Production Select Industry Index] and the Oil Service Index fell 2.2%. While oil was falling, natural gas prices actually rose 7% as the October contract prepares to roll off the board on Sept. 28. Gas prices continue to remain an unsolvable puzzle. If things hold, gas prices in October will be $1 higher than September, and prices are trading at the same level they were 6 months ago. Keep in mind that this is the price set for a month in which we are expected to reach record storage levels and test storage limits.”

Natural gas closed above $3.80/MMbtu and made a new high for the recent rally from $2.40/Mcf, said analysts at Pritchard Capital Partners LLC, New Orleans. “Until US demand returns, dollar weakness and emerging market demand (particularly China) remain crude’s best allies,” they said.

Pritchard Capital Partners said, “Natural gas rallied sharply through the prior week high of $3.80/Mcf that had been seen as resistance by technical traders. The rally was supported by comments from Aubrey McClendon the CEO of Chesapeake Energy Corp., who said that $4/Mcf was not sufficient to grow US natural gas production, and that it would take ‘much stronger’ natural gas prices to grow US natural gas production and to lift the natural gas rig count above 700. There is a growing consensus that the longer the rig count remains at depressed levels the greater the price increase will be in 2010.”

In other news, the US Department of Labor reported Sept. 24 that initial claims for unemployment insurance dropped to a seasonally adjusted 530,000 from an upwardly revised 551,000 the previous week, down for the third consecutive week. The number of people still claiming unemployment benefits through last week was down by 123,000 to 6.14 million. Including federal emergency programs puts the number of benefit recipients at 9 million.

Earlier, the Federal Reserve said spending remains constrained by job losses, tight credit, and falling home values. The National Association of Realtors said home resale’s dropped unexpectedly, down 2.7% to a seasonally adjusted annual rate of 5.1 million in August.

US inventories
On Sept. 24, the Energy Information Administration reported the injection of 67 bcf of natural gas into US underground storage during the week ended Sept. 18. That brought the amount of working gas in storage to more than 3.5 bcf, up by 509 bcf from this time last year and 485 bcf above the 5-year average.

EIA said earlier commercial US crude inventories increased 2.8 million bbl to 335.6 million bbl in the week ended Sept. 18, exceeding the American Petroleum Institute’s earlier estimate of a 2. 2 million bbl increase and well beyond the Wall Street consensus for a 1.4 million bbl drop. Gasoline stocks jumped by 5.4 million bbl to 213.1 bbl in the same period and distillate fuel inventories escalated 3 million bbl to 170.8 million bbl (OGJ Online, Sept. 23, 2009).

Energy prices
The new front-month November contract fell by $2.79 to $68.97/bbl Sept. 23 on the New York Mercantile Exchange. The December contract dropped $2.71 to $69.51/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $2.58 to $68.97/bbl. Heating oil for October delivery declined by 5.27¢ to $1.76/bbl on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month lost 7.67¢ to $1.70/gal.

The October contract for natural gas gained 25.1¢ to $3.86/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 9.5¢ to $3.47/MMbtu.

In London, the November IPE contract for North Sea Brent dropped $2.54 to $67.99/bbl. Gas oil for October fell $14.50 to $557.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes declined 72¢ to $67.87/bbl on Sept. 23.

Contact Sam Fletcher at [email protected].