Market watch: Energy futures falter with economic concerns

Futures prices for oil and refined products slumped Monday as traders focused their concerns on the effect of a US economic slowdown on the world economy. Some analysts are worried that a sluggish economy will reduce world demand for oil.


By the OGJ Online Staff

HOUSTON, July 31 -- Futures prices for oil and refined products slumped Monday as traders focused their concerns on the effect of a US economic slowdown on the world economy.

Some analysts are worried that a sluggish economy will reduce world demand for oil, resulting in surplus supplies that will surpass the planned Sept. 1 reduction of 1 million b/d of production by the Organization of Petroleum Exporting Countries.

The September contract for benchmark US sweet, light crudes dropped 39¢ to $26.63/bbl on the New York Mercantile Exchange, while the October contract was down 35¢ to $26.06/bbl.

Home heating oil for August delivery pulled back by 0.72¢ to 70.59¢/gal, and unleaded gasoline for the same month lost 0.64¢ to 75.11¢/gal.

The September natural gas contract continued to strengthen, gaining 15.9¢ to $3.35/Mcf despite expectations that the American Gas Association will report another 72-82 bcf of gas were injected into US underground storage last week.

That would put US natural gas storage levels up 15%, or 285 bcf, above year-ago levels, said Robert Morris, a senior energy analyst with Salomon Smith Barney Inc. Although US temperatures last week generally were 27% higher than a year ago, he said, the US gas market in the last 10 weeks still has not recovered demand lost to alternative fuels and reduced consumption as a result of higher prices during winter.

Higher than normal temperatures are expected to persist in the central US through next week, with hot weather "that could rival any other 5-6 day stretch during the past 10 years," Morris reported.

In London, the September contract for North Sea Brent crude fell 23¢ to $24.96/bbl on the International Petroleum Exchange. Its decline below the $25/bbl mark could trigger follow-through selling that might take that contract down around $24.50/bbl today, analysts said. Meanwhile, the August natural gas contract dropped 10.9¢ to the equivalent of $2.59/Mcf on the IPE.

The average price for OPEC's basket of seven crudes was down 24¢ to $23.63/bbl on Monday.

Although OPEC has agreed to three production cutbacks this year, some of its members and non-OPEC producers have investment programs in place aimed at increasing oil and gas production within a few years.

Iran is implementing 12 buy-back accords that will add 520,000 b/d of crude production and 390,000 b/d of gas condensate over the next 4 years, officials said.

Nigeria's government plans to spend $5 billion annually with joint-venture companies over the next 10 years. One aim is to eliminate flaring of natural gas in that country's oil fields by 2008. Officials report that 65% of the 1.39 tcf of associated gas produced annually in Nigeria is being flared.

Meanwhile, a number of major integrated European oil companies have joined forces to exploit an oil field on the north coast of the Caspian Sea in Kazakhstan. The Kashagan discovery is estimated to contain as much as 20-30 billion bbl of recoverable oil, matching Nigeria's total oil reserves, officials said.

More in Production Operations