Sam Fletcher
OGJ Senior Writer
HOUSTON, July 19 -- Crude prices continued to slip lower July 16 on the New York market with both the commodity and equity markets falling on reports that consumer confidence hit a 12-month low.
The euro strengthened to a 2-month high as the sovereign-debt crisis appeared to diminish. At the same time, the US dollar fell to a 7-month low against the yen.
“The Standard & Poor’s 500 [index] fell 2.9% with most energy sectors underperforming vs. the broader market,” said analysts in the Houston office of Raymond James & Associates Inc. It was “the largest drop so far this month,” they said.
In early trading July 19, crude was relatively unchanged but natural gas was down another 1% “following last week's jump in the gas rig count,” Raymond James reported.
Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said “Softening consumer confidence and a slowdown in manufacturing activity in the Northeast has further added to the concerns of an economic deceleration in the second half of the year. Crude has been under pressure on concerns of moderating economic growth, although projections of a positive earnings season have been providing relief to prices, keeping them range-bound around $75/bbl.” He noted crude has traded at $71.09-79.38/bbl over the past month.
Sharma reported, “Natural gas declined 4 out of 5 days last week, although prices still closed 11.7¢, or 2.7%, higher week-over-week largely due to the 6.5% surge on [July 15] following the Energy Information Administration’s report of a much-below-average injection of 78 bcf [in US underground storage for the week ended July 9]. He said, “We believe another below-average injection this week will be supportive to prices, although, apprehensions about the potential economic slowdown and oversupply concerns would keep prices under pressure.”
He observed, “The recent weather-driven price support emboldened producers as they expanded their drilling activity further, adding 15 more natural gas rigs (5 of which were horizontal) in the week ending July 16.” The natural gas rig count currently stands at 979 while horizontal rig count set another high record at 630 last week, said Sharma.
Analysts at the Centre for Global Energy Studies, London, said, “With the oil market receiving no clear signals from the fundamentals of supply and demand, oil prices are reacting to sentiment about the pace and robustness of the global economic recovery, which is buffeted by each new piece of data and every new forecast. Ample spare capacity throughout the oil supply chain is effectively keeping a lid on price rises. Price support is coming from the structural shift that is concentrating oil’s use in the high-value transport sector and the belief that the Organization of Petroleum Exporting Countries will act to prevent prices from falling much below $70/bbl.”
While the year-on-year surge in global oil demand, which they estimated at 2.7% in the first half of 2010, “is certainly impressive,” CGES analysts said, “it represents recovery from a very low recession-induced level of consumption. Global oil demand in the second quarter of 2010 was still below the level of 2 years earlier. With ample spare capacity both to produce and refine oil, the demand recovery is not yet putting a strain on the industry’s ability to supply the required products.”
The recession accelerated a structural shift in oil demand, “which has become increasingly concentrated in the transportation sector,” said CGES analysts. They reported, “After the run-up in oil prices during 2007-8, people have become more conscious of the cost of fuel and appear to be adopting more conservative approaches to its consumption. The world is increasingly burning fuels other than oil to generate heat and power, leaving transportation as the only area where there is still no large-scale alternative to oil. Even here, though, alternative plant-based fuels are beginning to make in-roads into one of oil’s last strongholds. Global production of biofuels now stands at around 1.8 million b/d, accounting for 2% of global liquids supply. With no widely available alternative, consumers in the transport sector are willing to pay far higher fuel prices than their counterparts in the static sectors, helping to maintain the price of oil.”
Energy prices
The August contract for benchmark US light, sweet crudes continued to fall, losing 61¢ to $76.01/bbl July 16 on the New York Mercantile Exchange. The September contract dropped 63¢ to $76.38/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 61¢ to $76.01/bbl as it continued to tract the front-month futures market price. Heating oil for August delivery slipped 0.7¢ to $2.01/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 1.21¢ to $2.05/gal.
The August natural gas contract fell 6.7¢ to $4.52/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 16¢ to $4.63/MMbtu.
In London, the September IPE contract for North Sea Brent crude dropped 72¢ to $75.37/bbl. Gas oil for August increased $1 to $638.50/tonne.
The average price for OPEC’s basket of 12 reference crudes was down 37¢ to $72.89/bbl. So far this year, OPEC’s basket price has averaged $75.62/bbl.
Contact Sam Fletcher at [email protected].
