Market watch: Bearish gasoline market pulls down energy futures prices

By OGJ editors
HOUSTON, Aug. 2 -- Gasoline futures prices continued to fall Thursday as traders scrambled to liquidate huge long positions previously accumulated in anticipation of strong demand and a sizeable draw of US inventories.

Analysts said traders earlier overbought gasoline futures on the New York Mercantile Exchange and were forced to sell off stale long positions to minimize losses in the wake of unexpectedly bearish reports of US inventories by the American Petroleum Institute on Tuesday and the US Department of Energy on Wednesday.

The September contract for unleaded gasoline plunged 2.71¢ to 76.22¢/gal Thursday on NYMEX, surpassing Wednesday's loss of 2.58¢ on the expiring August contract. Heating oil for September delivery lost 1.42¢ to 67.2¢/gal.

With no new bullish indicators to offset it, the sell-off of gasoline futures pulled down crude values in New York and London. A strong statement made by Rilwanu Lukman, conference president of the Organization of Petroleum Exporting Countries, that Nigeria has no plans to leave OPEC did little to reassure the market. Lukman also is energy advisor to the president of Nigeria.

The September contract for benchmark US light, sweet crudes fell 55¢ to $26.47/bbl Thursday on NYMEX. The October position was down 41¢ to $26.06/bbl.

Natural gas for September delivery plunged 11.2¢ to $2.84/Mcf, wiping out the previous session's 6.3¢ gain, after the US Energy Information Administration reported early Thursday that 60 bcf of gas was injected into US underground storage last week. That amount was "near the top" of Wall Street's expectations and pushed total gas now in storage past 2.5 tcf, compared with 2.22 tcf a year ago and a 5-year average of 2.178 tcf.

"The market immediately dipped into the high $2.80s after the release of the report, and slipped lower to test the $2.85(/Mcf) support level," reported analysts at Enerfax Daily. "About midday, a lone fund sold the market downward with nobody there to stop him because most traders were out to lunch."

The only factors that dampened gas sales were speculation of a possible hurricane in the Gulf of Mexico and the usual short covering ahead of a weekend, analysts said. The market remains locked in its range, although some expect it to test support at $2.75/Mcf before rebounding to $3.10/Mcf.

In London, the September contract for North Sea Brent crude was down 43¢ to $25.01/bbl on the International Petroleum Exchange. However, the September natural gas contract jumped by 6¢ to the equivalent of $2.03/Mcf on the IPE.

The average price for OPEC's basket of seven benchmark crudes fell 50¢ to $24.78/bbl Thursday.