Sam Fletcher
OGJ Senior Writer
HOUSTON, Aug. 16 -- Crude oil prices continued to slump Aug. 13 with the front-month crude price down for the fourth consecutive session to a 1-month low in the New York market on reports of lower-than-expected July general retail sales.
The price of crude was down 6.7% for the week, the biggest 1-week decline since early July. The front-month natural gas contract reclaimed 0.7% from steep losses earlier in the week “as the utilities and independent power producers stepped in to take advantage of low gas prices relative to coal before the summer cooling demand disappears,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston.
The US Department of Commerce reported US retail sales rose 0.4% in July, less than economists expected. The consumer price index rose 0.3% in July in line with expectations. The University of Michigan’s index of consumer confidence was better than expected, up to 69.6 in August from 67.8 in July.
“The recent strengthening of the dollar has put additional pressure on crude,” Sharma reported. “The dollar has increased 3.9% since Aug. 6. Additionally, anemic demand has pushed the distillate inventories to 27 years high and gasoline inventories to 10 million bbl above last year’s level. We believe that despite the outlook for the slower demand growth in the US, crude shall find support around $75 largely due to still robust demand from the emerging markets.”
Retail sales data “show sales excluding cars and gasoline [were] 3.8% higher than a year ago, which is a positive but offset by a flat sales number three months in a row,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “The economy is for sure not in the meltdown situation of late 2008 but in a very slow recovery mode. In such environment, investing needs to be done through a careful selective process (stock picking), but the problem is that most asset managers have turned away from that model in recent years and have turned instead to a pure diversification model, intensified by the use of exchange traded funds. That model could, however, under-perform in an economy that is recovering at a slow pace.”
Jakob said, “The correlation between West Texas Intermediate [prices] and the Standard & Poor’s 500 index remain extremely high either on the 20-, 50- or 100-day basis. On a 50-day basis (which is the reference we use for our models) the highest correlation is currently with the S&P 500, followed by the market volatility index, while the correlation to the euro seems to have peaked and is starting to decline.” According to the Petromatrix correlation model between WTI and these exogenous inputs, crude should have been valued at $76.75/bbl Aug. 13, which was higher than the closing price. “Our model was showing WTI being overbought during the early August rally, and WTI has readjusted to the implied value of the model; now the model is showing WTI being oversold by about $1.40/bbl, and we would therefore be cautious on the short side if the exogenous inputs take a pause from the negative trend.”
Raymond James analysts noted that economic data “suggest” China has surpassed Japan as the world's second largest economy. “This news comes on the heels of the Organization of Petroleum Exporting Countries’ upward revision to its second-half 2010 and 2011 worldwide oil demand forecasts to reflect among other things, increased demand from…China,” they said. OPEC now expects worldwide crude demand to increase by 1.05 million b/d next year to an average of 86.56 million b/d.
Energy prices
The September contract for benchmark US light, sweet crudes slipped 35¢ to $75.39/bbl Aug. 13 on the New York Mercantile Exchange. The October contract declined 38¢ to $75.77/bbl. On the US spot market, WTI at Cushing, Okla., fell $2.63 to again match the future market’s closing price of $75.39/bbl. Heating oil for September delivery dipped 0.59¢ to $2/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month lost 1.52¢ to $1.94/gal, an 11-week low.
The September natural gas contract regained 3.2¢ to $4.33/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 3.5¢ to $4.36/MMbtu.
In London, the September IPE contract for North Sea Brent crude declined 41¢ to $75.11/bbl. Gas oil for September dropped $11.25 to $636.75/tonne.
The average price for OPEC's basket of 12 reference crudes lost $1.09 to $72.64/bbl. So far this year, OPEC’s basket price has averaged $75.58/bbl.
Contact Sam Fletcher at [email protected].
