MARKET WATCH: Crude market ends 2-day price decline

Sam Fletcher
Senior Writer

HOUSTON, July 10 -- Crude prices barely inched up July 9, ending 2 days of losses in the New York market as Iran again tested missiles—some with a long enough range to hit Israel.

"Oil has stabilized after its 2-day freefall as news of Iran test-firing missiles as well as saber-rattling in general has helped support prices," said analysts in the Houston office of Raymond James & Associates Inc.

Israel, which may have its own nuclear arsenal, has said it will prevent Iran from acquiring the ability to make nuclear weapons. An exercise last month by Israel's air force triggered speculation of a possible attack on Iran's nuclear sites.

On July 10, analysts at Pritchard Capital Partners LLC, New Orleans, said, "After dropping more that 25¢ to start the week, gasoline and heating oil prices have made a comeback over the last 2 days. Prices have not fully recovered the losses, but tensions in the Middle East, supply conflicts in Nigeria, and a sizeable drop in US crude inventories are combining to revive prices. The gains are larger in Europe than in the US, but some analysts still think prices are going higher and new records will be set."

They said, "Gasoline offers nagging returns for refiners looking to recoup margins from high crude prices. Gasoline traders worry about declining demand in key US markets. Downstream marketers have to be concerned about taking on too much inventory given the high cost of product and the backwardation in the futures price curve."

Meanwhile, Ronald J. Barone, managing director of UBS Securities LLC analyst in New York, said that firm is raising its composite spot natural gas price forecast to $10.75/MMbtu from $9/MMbtu in 2008 and to $11.35/MMbtu from $8.60/MMbtu in both 2009-10. It's also raising its outlook for gas prices on the New York Mercantile Exchange to $10.80/MMbtu from $9.10 MMbtu in 2008 and to $11.50/MMbtu from $8.75/MMbtu in 2009-10.

"Natural gas fundamentals continue to improve from both the supply and demand side," said Barone. "On the supply side, we expect accelerating declines in Canadian production and imports and below average LNG imports through the summer to more than offset US gas production increases of 3% (1.5 bcfd). Demand remains supported by gas fired electric generation growth and industrial resilience via the weak dollar. Also notable, storage levels are back to normal for the first time since December 2005."

Energy prices
The August contract for benchmark US sweet, light crudes traded at $135.34-138.28/bbl July 9 before closing at $136.05/bbl, up just 1¢ for the day on NYMEX. The September contract dipped 1¢ to $136.72/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 2¢ to $136.06/bbl. Heating oil for August gained 3.14¢ to $3.85/gal on NYMEX. The August contract for reformulated blend stock for oxygenate blending (RBOB) increased 1.77¢ to $3.38/gal.

The August natural gas contract fell 36.2¢ to $12.01/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 32.5¢ to $12.12/MMbtu. Pritchard Capital analysts said, "Natural gas futures crashed lower for a third consecutive session [July 9] amid rumors that a large commodity trading firm was rapidly exiting its positions."

The Energy Information Administration reported the injection of 90 bcf of gas into US underground storage during the week ended July 4. That brought the total working gas in storage to 2.2 tcf, down 389 bcf from year-ago storage figures and 70 bcf below the 5-year average.

In London, the August IPE contract for North Sea Brent crude gained 15¢ to $136.58/bbl. Gas oil for July increased $12.75 to $1,235.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes dropped $2.05 to $133.16/bbl on July 9.

Contact Sam Fletcher at [email protected].