Sam Fletcher
OGJ Senior Writer
HOUSTON, Aug. 24 -- Energy prices continued to tumble Aug. 23 with the front-month crude falling for the fourth consecutive session, down 1% to a new 6-week low in the New York market with the approaching close of the summer driving season and continued concerns over a faltering economic recovery.
“Along with base metals, crude oil is bearing the brunt of the pessimistic global economic outlook. Coal prices also continue to slide,” said analysts at Standard New York Securities Inc., part of The Standard Bank Group Ltd.
“August continues to be a disappointing month in the marketplace,” said analysts in the Houston office of Raymond James & Associates Inc. “With the recent slew of weaker-than-expected economic data, investors are becoming increasingly concerned about the stability of the economy.” Natural gas also was down, “falling a little over 1.2% and inching closer to the $4/Mcf mark,” Raymond James analysts said. “Despite weaker commodities and a falling market, exploration and production stocks remained somewhat resilient, while service stocks marginally outperformed as well.”
Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “The dollar strengthened against the euro on capital’s continued flight to the safety of the greenback due to uncertainties about the strength of the economic recovery. With petroleum inventories at the highest level in at least 20 years and approaching post-driving season’s soft demand period, crude will continue to be under pressure and will need help in form of positive economic data even to sustain current levels. With driving season almost over, speculators reduced long positions in gasoline futures by 74% in the 7 days ending Aug. 17.”
Sharma blamed “bearish sentiments” for holding down natural gas prices. “With summer fast receding and the supposedly hyperactive hurricane season a no-show so far, bears have the field to themselves. Natural gas is not likely to find any love from the Tropical Storm Danielle either, which now is not expected to pay a visit to the producing regions of the Gulf of Mexico. We expect prices to remain under pressure as the September contract settlement approaches, and the temperature [is] expected to be mostly normal across much of the US this week,” he said.
Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The stock market is under a cycle of outflows, some well-respected large macro hedge funds are calling it a day, volume in equities remains historically low, and we see growing discontent being voiced against the action of high-frequency trading machines. The level of ‘financial engineering’ in the market does not seem to be seriously lower than in 2007-08 and that has not helped to bring confidence in the stock market. In our opinion, this means that the global markets are still exposed to a deleveraging risk, and the current investment outflows are a warning flag in that regard. The experience of 2008 has shown that in an environment of high correlation across asset classes, there is nowhere to hide but in cash as asset classes start to be hit by margin calls one after the other.”
He noted, “The oil price collapse of 2008 was triggered by deleveraging but then fueled by consumers [who] had to close down their hedges (long positions) or sell oil futures to protect some of their short option positions that were financing their long call positions.”
The price of crude is “starting to approach some of the lows of the year on the long dated positions, where consumers are…on the long side. Therefore we are starting to arrive at an important crossroad where either the consumers start again to add to their long hedges and support a bottoming of the price collapse or start to be exposed to margin calls if the oil market continues to slide down,” Jakob surmised.
Energy prices
The new front-month October contract for benchmark US sweet, light crudes dropped 72¢ to $73.10/bbl Aug. 23 on the New York Mercantile Exchange. The November contract fell 73¢ to $73.73/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 72¢ to $73.10/bbl. Heating oil for September delivery declined 1.56¢ to $1.96/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month lost 4.41¢ to $1.88/gal.
The September natural gas contract fell 5.1¢ to $4.07/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., decreased by 4.5¢ to $4.13/MMbtu.
In London, the October IPE contract for North Sea Brent crude dropped 64¢ to $73.62/bbl, still at a premium over WTI. September gas oil was down $4.25 to $626/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 85¢ to $70.93/bbl.
Contact Sam Fletcher at [email protected].
Rystad Energy.
