MARKET WATCHOil futures prices continue to climb
Sam Fletcher
Senior Writer
HOUSTON, June 9 -- Futures prices for crudes and petroleum products continued to climb in trading Friday on the New York Mercantile Exchange.
The July contact for benchmark US light, sweet crudes increased 54¢ to $31.28/bbl Friday, while the August position registered a slightly larger gain, up 58¢ to $30/27/bbl. Heating oil for July delivery rose 0.9¢ to 78.18¢/gal. Gasoline for the same month was up 0.8¢ to 89.35¢/gal.
However, the July natural gas contract dipped by 1.1¢ to $6.51/Mcf on NYMEX, as "some morning buying was hit with some preweekend profit taking after an early attempt to move higher failed to challenge a new contract high of $6.719" from electronic trading the night before, analysts reported Monday at Enerfax Daily.
In early trading Friday, they said, "The market saw some follow-through buying with cash also up, but it was still weak vs. the futures, which helped trigger the selling. The wide cash discount to futures, at times 20¢(/Mcf), encouraged storage operators to pick up the pace of injections. The market was also pressured when longs decided to take profits ahead of the weekend after a 4% run up last week."
Gas market outlook
Meanwhile, Stephen A. Smith, founder and head of Stephen Smith Energy Associates, Natchez, Miss., warned that gas prices in excess $6/Mcf may soon be a thing of the past "unless oil prices spike" or the US transitions quickly into a "very hot summer."
In two reports issued this week, Smith noted that unusually cool US weather this spring, "particularly in the Midwest," has been "masking 3-4 bcfd of price induced demand destruction over the last 5 weeks."
He said, "When the gas demand benefit of cold spring weather goes away—and it will soon—unless we shift to abnormal heat quickly, the price-induced demand destruction in the industrial and utility sectors will be plain for all to see." If that occurs, said Smith, "We could see a string of stronger-than-normal storage builds, which would put some consistent downward pressure on gas prices at least for several weeks."
Last week, the US Energy Information Administration reported a record high injection of 114 bcf into US underground storage during the week ended May 30, compared with injections of 95 bcf the previous week, 107 bcf during the same period last year, and a 5-year average of 89 bcf.
Smith anticipates EIA this week will report a build of 106 bcf for the week ended June 6, marking "the second consecutive week of meeting or exceeding the target deficit reduction of 15 bcf/week that is needed to restore storage to normal by Nov. 1." He claimed, "If weather had been normal for the last 5 weeks, the storage would have been shrinking at a rate of 27 bcf/week as compared with the actual rate of 7 bcf/week that was observed. A deficit reduction pace of 27 bcf/week would eliminate the storage deficit by the start of September."
He said, "If it turns out to be a milder-than-normal summer, as some weather forecasters expect, then the downward pressure could push gas price down by more than $1/Mcf over the next 4-6 weeks."
IPE market prices
The July contract for North Sea Brent oil increased by 34¢ to $27.78/bbl Friday on the International Petroleum Exchange in London. The July natural gas contract gained 3.7¢ to the equivalent of $2.87/Mcf on IPE.
The Vienna headquarters of the Organization of Petroleum Exporting Countries was closed Monday for a public holiday, so there was no report of an average price for the OPEC basket of seven crudes. OPEC ministers are scheduled to meet Wednesday in Doha, Qatar, to discuss market conditions. Ahead of that meeting, energy ministers from Saudi Arabia and Venezuela were to meet Monday in Madrid with their counterparts from Mexico and other unidentified "major independent oil-producing countries" to analyze the world oil market and "study strategies," in case OPEC members decide later this week to reduce production.
Contact Sam Fletcher at [email protected].