Sam Fletcher
OGJ Senior Writer
HOUSTON, Sept. 7 -- The front-month natural gas contract advanced 4.8% Sept. 3 in the New York market, but crude dropped below $75/bbl, ending a 2-day rally.
Natural gas inched “closer to the $4 levels it had dropped from only a week and a half ago, as speculators did not want to be sitting on big short positions over a long weekend with lots of tropical activity brewing,” said analysts in the Houston office of Raymond James & Associates Inc. However, they reported, “The two named storms, Gaston and Hermine, proved little threat to the Gulf of Mexico, and prices have since retreated. Despite the broader market rallying over 1% on [Sept. 3], oil prices continued their short-term disconnect and fell 0.6%.”
Olivier Jakob at Petromatrix, Zug, Switzerland, noted the rebound in US equity markets Sept. 3 ahead of the long Labor Day weekend, triggered by better-than-expected economic reports “that were not all necessarily good in absolute terms.” He reported, “The trading reaction in equities on the release of macroeconomic data was extremely rapid, with the trades of a couple of minutes making for most of the daily print, and therefore we will need to be a bit cautious in assuming that the same momentum can be sustained when the market fully returns this week.”
Prices for oil, gas, and broader market futures were all lower in early trading Sept. 7. “This week's trading action could prove telling of a bigger upcoming rally or sell-off in the market as investors get back from vacation and place their bets for the last few months of the year,” said Raymond James analysts.
At Standard New York Securities Inc., part of the Standard Bank Group, analysts said thin trading with the New York futures exchange closed because of the US holiday kept oil range-bound, and unable to take advantage of the weak dollar after it fell Sept. 3 against most other major currencies because of a better-than-expected US jobs report. On Sept. 7, however, they reported crude succumbed to a stronger dollar and growing doubts regarding the global recovery. It “seems likely” energy markets will remain depressed, they said.
Jakob pointed out, “At the current pace of job creation, it would take 7 years to reverse the job losses of 2008-09, hence the general picture is not changed: much stronger job creation is required.”
In other news, Raymond James analysts questioned if Iraq can increase its oil production to 9 million b/d in the next 6 years, as government officials indicated “following last week's symbolic end-of-combat milestone.” They observed, “While it is not a 1:1 comparison, the fact that Libya has been unable to deliver robust oil production growth following the lifting of [United Nations] sanctions in 1999 and US sanctions in 2004 carries read-through for the current state of affairs in Iraq. Much like Libya in the early part of the past decade, Iraq is pursuing aggressive targets for future production growth now that it has reopened for business. But foreign investment is not a panacea. Although it is an important component—indeed, arguably a necessary one—to achieve substantial growth, it is by no means sufficient. If Iraq achieves Libya's post-sanctions growth rate, it would only get to 3.3 million b/d near the end of this decade—light years away from the official target of up to 12 million b/d. Even our more optimistic projection of 4 million b/d still implies that the official goal is ludicrously over-ambitious.”
Energy prices
The October contract for benchmark US light, sweet crudes dropped 42¢ to $74.60/bbl Sept. 3 on the New York Mercantile Exchange. The November contract lost 27¢ to $75.97/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 42¢ to $74.60/bbl. Heating oil for October delivery declined 0.5¢ to $2.06/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 0.21¢ to $1.92/gal.
The October natural gas contract escalated 18.8¢ to $3.94/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 6.5¢ to $3.75/MMbtu.
In London, the October IPE contract for North Sea Brent crude lost 26¢ to $76.67/bbl, still trading at a premium to WTI. Gas oil for September dropped 75¢ to $639/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained 38¢ to $73.43/bbl on Sept. 6. So far this year, OPEC’s basket price has averaged $75.28/bbl.
Contact Sam Fletcher at [email protected].
