MARKET WATCHEnergy prices slump in directionless markets

Sam Fletcher
Senior Writer
HOUSTON, July 29 -- Energy futures prices slipped Monday, with no major news to push markets to a significant degree in any direction.

The September contract for benchmark US light, sweet crudes lost 6¢ to $30.11/bbl on the New York Mercantile Exchange, while the October position fell by 10¢ to $29.73/bbl. Unleaded gasoline for August delivery dropped 0.56¢ to 89.37¢/gal. Heating oil for the same month was down 0.31¢ to 77.38¢/gal.

The August natural gas contract dipped only 0.6¢ to $4.70/Mcf Monday on NYMEX, "despite pressure by bearish technicals (short-term trends that technical analysts use to predict future price movements of commodities) and fairly mild weather forecast for this week," said analysts Tuesday at Enerfax Daily. "While technical traders say the market is a bit oversold and due for a bounce, the near-term trend turned bearish again last week as the market broke some key technical points and slipped to a 7-month spot chart low."

Natural gas outlook
"With the large gas storage injections over the past several months, many sell-side analysts have thrown in the towel on US natural gas," said Wayne Andrews, an analyst in the Houston office of Raymond James & Associates Inc., St. Petersburg, Fla.

However, Andrews said, "One of the changes between today and 2001 is the fact that a substantial amount of new gas-fired electric generation capacity is now in place. With gas-fired industrial demand down sharply and limited switching capacity for residential and commercial consumers, power generators are now the marginal consumers of natural gas and set the market-clearing price."

Much of the new gas-fired power generation capacity has remained idle, however, due largely to higher natural gas prices earlier this year and mild weather this summer in areas of the highest concentration of gas-fired power.

"Average US temperatures have been so mild this summer that we have not really tested the new gas-fired system. Over the next couple of months, that is likely to change," Andrews said. "The reduced (price) incentive to burn oil products, combined with the potential for warmer weather, leads us to believe the US gas markets may be surprised by a sharp increase in gas demand as we move through August."

He warned, "If the weather in the south and south central parts of the country turns hot, then look out."

Other markets
In London, the September contract for North Sea Brent oil lost 15¢ to $28.03/bbl on the International Petroleum Exchange. The August natural gas contract declined by 2.7¢ to the equivalent of $2.77/Mcf.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes lost 36¢ to $27.02/bbl Monday.

Contact Sam Fletcher at [email protected]