Sam Fletcher
OGJ Senior Writer
HOUSTON, July 6 -- The front-month crude contract fell 1.1% July 2 in the New York market just ahead of the 3-day Independence Day holiday in the US, while the similar natural gas contract dropped 3.4% as weak manufacturing figures caused concerns that the nation’s industrial demand may be slowing.
“Factory orders in the US declined 1.4% in May vs. a consensus of a 0.4% drop. [Gas] prices had earlier surged 23.8¢ on [July 1] on a smaller than expected injection,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston.
The price of crude on the New York futures market was down 8.5% for the week, trading as low as $71.62 in the July 2 session, “the lowest level since June 8,” said Sharma. That drop followed a US Department of Labor report that payrolls fell by 125,000 last month, primarily due to the government’s reduction of 225,999 temporary census workers.
Analysts in the Houston office of Raymond James & Associates Inc. said corporate stocks also registered losses July 2 as the Dow Jones Industrial Average continued its longest decline—“7 days and counting”—since the financial crisis of 2008. However, they reported stock futures trading higher early in the July 6 session “as attractive valuations seem to have outweighed signs that the economy will continue to cool in the second half of 2010,” they said. They also reported crude futures were “rebounding off 4-week lows” and natural gas was trading higher. “Meteorologists are closely watching a tropical wave that will move across the Yucatan Peninsula today and enter the southern gulf, where atmospheric conditions are favorable for development,” said Raymond James analysts.
Sharma noted temperatures this week on the East Coast and in the southern and western US are expected to be much above normal and are likely to provide additional support for gas. “Extreme summer temperatures will provide a temporary boost to prices, although we believe that unless one of the forecasted hurricanes does significant damage to Gulf of Mexico infrastructure, concerns about slowing economic growth and growing supplies in the US will continue to weigh on prices, keeping them mostly range bound around $4.50-4.80[/MMbtu],” he said.
In other news, Raymond James analysts said BP PLC reported July 5 its oil spill costs have reached $3.12 billion, running at $67 million/day over the past week (OGJ Online, July 6, 2010). “The slowdown from the prior week's $100 million daily run-rate doesn't mean the work has gotten any easier—it merely reflects the suspension of cleanup operations during Hurricane Alex,” they said.
“The more interesting news, however,” the analysts said, “is a series of press reports about BP's discussions with Middle Eastern sovereign wealth funds about a large (up to $10 billion) equity injection. BP was reportedly in talks with the Kuwait Investment Office (already a 1.75% shareholder) and its counterparts from Abu Dhabi and Qatar, with Libya apparently making a unilateral approach. While issuing equity at or near the current share price would be inherently dilutive, the upside is that such an investment would be seen by the market as a ‘seal of approval,’ a tangible endorsement from a high-profile investor.”
Raymond James said, “BP does not, strictly speaking, need the cash, given its dividend suspension and ongoing asset sale program, and in fact today the company denied that it is looking to raise equity. However, the news that some high-profile investors are interested helps improve market sentiment, which apparently explains why the shares [were] up premarket today.”
Energy prices
The August contract for benchmark US light, sweet crudes dropped 81¢ to 72.14/bbl July 2 on the New York Mercantile Exchange. The September contract fell 86¢ to $72.60/bbl. Heating oil for August delivery lost 2.3¢ to $1.92/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 1.99¢ to $1.98/gal. The August natural gas contract tumbled 16.7¢ to $4.69/MMbtu on NYMEX.
In London, the August IPE contract for North Sea Brent crude was down 69¢ to $71.65/bbl. Gas oil for July dropped $3 to $613.75/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 55¢ to $69.08/bbl on July 5. So far this year, OPEC’s basket price has averaged $75.92/bbl.
Contact Sam Fletcher at [email protected].
Rystad Energy.
