MARKET WATCH: Natural gas price falls, oil price rallies

The front-month natural gas contract fell July 24 on the New York futures market after the Energy Information Administration reported a continued build in US gas storage.

Sam Fletcher
Senior Writer

HOUSTON, July 25 -- The front-month natural gas contract fell July 24 on the New York futures market after the Energy Information Administration reported a continued build in US gas storage.

"A stock build slightly higher than expected…made for another sharp fall of that commodity, but there was enough support on crude oil for the weakness in natural gas not to spread to the rest of the complex," said Olivier Jakob at Petromatrix, Zug, Switzerland. "From the high at the start of the month to the low of [July 24], natural gas has lost 35%."

Prices for crude and petroleum products rallied July 24 and continued to make moderate gains in early trading July 25. At Pritchard Capital Partners LLC, New Orleans, analysts reported, "Product inventories continue to build amid soft demand, but in order for reformulated blend stock for oxygenate blending (RBOB) and heating oil to test some of the critical support levels, it will need some cooperation from crude oil, particularly in the case of RBOB where crack spreads are miserable."

EIA reported the injection of 84 bcf of gas into US underground storage during the week ended July 18, compared with a Wall Street consensus of 78-82 bcf. Working gas in storage is now at 2.4 tcf, down 347 bcf from a year ago at this time and 22 bcf below the 5-year average. The latest injection followed a higher-than-expected injection of 104 bcf the prior week. "The higher injections are more likely due to a further up tick in supply rather than a reduction in non-weather-related demand vs. recent weeks," said Michael C. Schmitz, Banc of America Securities LLC, New York.

Pritchard Capital analysts said, "August natural gas almost made its $9/MMbtu visit a 1-day event as the prompt month crashed into $8/MMbtu territory for the first time in 4 months before a late rally." They said, "Supply bears point out that it will not take much from here to get to a comfortable 3.4 tcf [in storage] by the start of the heating season, but bulls like to point out that there is still plenty of summer left, and the likelihood of supply-diminishing hot weather always looms. In the near term, however, populous eastern energy markets are likely to be cool."

Fuel spill
The largest petroleum spill in the Mississippi River since Hurricane Katrina in 2005 stacked up ship and barge traffic from New Orleans to the Gulf of Mexico after the tanker Tintomara, owned by Whitefin Shipping Co. of Gibraltar, hit an American Commercial Lines barge July 23 (OGJ Online, July 25, 2008). The 600-ft tanker, loaded with styrene and biodiesel, split the 190-ft barge in half, dumping the fuel. The tanker was not seriously damaged, however. US Coast Guard officials said it could take days to reopen the 97-mile stretch of river and weeks for cleanup.

On the Gulf Coast, barrels of petroleum product originally intended for barge travel were stuck in port by the spill, and some were sold into the spot market. Refiners, however, do not anticipate any major impact on their operations. Most of the nine refineries in that area are supplied with crude through pipelines.

The US Minerals Management Service issued its final update of evacuation and shut-in production statistics for Hurricane Dolly as workers began returning offshore July 24. Officials said 43 of the 717 manned production platforms in the Gulf of Mexico and 4 of the 123 rigs were evacuated. About 1.39% of oil production and 5.45% of gas production from the gulf was temporarily shut in.

In other news, a rally of the dollar against the euro continued for the third day, and Iran indicated it will no longer cooperate with United Nations experts in a year-long search for clandestine efforts to develop nuclear weapons in that country.

In Venezuela, President Hugo Chavez said Russian troops would be "welcomed warmly" should Russia want to build military bases in his country. In Nigeria, gunmen in speedboats kidnapped two oil engineers in Port Harcourt on July 25.

Energy prices
The September contract for benchmark US light, sweet crudes regained $1.05 to $125.49/bbl July 24 on the New York Mercantile Exchange. The October contract increased 93¢ to $125.97/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.05 to $124.74/bbl. Heating oil for August advanced 1.7¢ to $3.57/gal on NYMEX. RBOB for the same month gained 2.5¢ to $3.06/gal.

The August natural gas contract traded as low as $8.88/MMbtu before rallying to close at $9.32/MMbtu, down 46.5¢ for the day on NYMEX. On the US spot market, gas at Henry Hub, La., lost 21.5¢ to $9.74/MMbtu.

In London, the September IPE contract for North Sea Brent crude gained $1.15 to $126.44/bbl. The August gas oil contract, however, fell $6.75 to $1,163.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes dropped $1.47 to $122.42/bbl on July 24.

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