MARKET WATCH: Energy prices fall in profit taking

Energy futures prices fell May 12 as the US dollar strengthened and trader's took profits from the recent rally, but not before some commodities hit new intraday highs in that session.

May 13, 2008

3 min read

Sam Fletcher
Senior Writer

HOUSTON, May 13 -- Energy futures prices fell May 12 as the US dollar strengthened and trader's took profits from the recent rally, but not before some commodities hit new intraday highs in that session.

"Crude oil garnered the most attention, after spending time below the $124/bbl mark," said analysts at Pritchard Capital Partners LLC, New Orleans, on May 13. "But heating oil saw the biggest losses—nearly 8¢/gal on the day. Market watchers suspect those deep declines were the catalyst for a rebound in No. 2 oil futures this morning. They were back up some 5¢, while West Texas Intermediate and [reformulated blend stock for oxygenate blending] RBOB futures saw subtler gains," they said. "The move again shows the resilience of futures in this record-breaking season. Once they drop back, [prices] have handily moved up again. The lightest losses yesterday came from the RBOB futures ring."

In its latest monthly market report released May 13, the International Energy Agency in Paris again lowered its estimates of global demand for crude and supplies from outside the Organization of Petroleum Exporting Countries. "Total demand is now estimated at 86.8 million b/d for the full year, which implies about 1.2% year-over-year growth and is still higher than our estimate of 0.8% growth," said analysts in the Houston office of Raymond James & Associates Inc. "Non-OPEC growth was trimmed meaningfully, from 820,000 to 680,000 b/d, closer to our estimate of 510,000 b/d (for reference, the IEA has cut its non-OPEC growth estimate by 25% since December). Overall, the report was as expected, although we continue to believe that the IEA's demand and non-OPEC supply numbers are both too high."

Although the Gulf of Mexico's official hurricane season doesn't start until June 1, Tropical Storm Ophelia has developed over the US Atlantic and could make landfall with Category 1 strength. "It should however be of no concern to oil assets," said Olivier Jakob at Petromatrix, Zug, Switzerland.

Energy prices
The June contract for benchmark US sweet, light crudes topped out at an intraday record $126.40/bbl May 12 on the New York Mercantile Exchange, before closing at $124.23/bbl, down $1.73 for the day. The July contract lost $1.90 to $124.10/bbl. On the US spot market, WTI at Cushing, Okla., was down $1.73 to $124.24/bbl. RBOB for June delivery hit an intraday record of $3.218/gal on NYMEX before closing at $3.16/gal, down 3.7¢. Heating oil for the same month dropped 7.26¢ to $3.56/gal.

The June natural gas contract also hit an intraday record of $11.675/MMbtu; However, it dropped 23.6¢ to close at $11.30/MMbtu on NYMEX. "Moving once again in lockstep with crude prices, June natural gas futures on May 12 recorded a morning high of $11.598 before crashing late in the session. During the last half hour of the regular session, the prompt month [gas contract] dropped from $11.479/MMbtu to a low of $11.249/MMbtu before closing out the session at $11.301/MMbtu, down 23.6¢ cents from the May 9 finish. "While the values are far from on par, natural gas and crude futures continued to be linked in direction," said Pritchard Capital Partners. On the US spot market, gas at Henry Hub, La., gained 8¢ to $11.37/MMbtu.

In London, the June IPE contract for North Sea Brent crude lost $2.49 to $122.91/bbl. the May gas oil contract was unchanged at $1,192.50/tonne.

The average price for OPEC's basket of 13 reference crudes gained 58¢ to $119.71/bbl on May 12. So far this year, OPEC's basket price has averaged $97.34/bbl.

Contact Sam Fletcher at [email protected].