MARKET WATCH: Economic fears push down energy prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, May 18 -- Energy prices fell May 15, essentially wiping out all gains from earlier in the week, as traders' attention again shifted from hopeful signs that the economy may be recovering to the reality of large supplies and less demand.

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said, "However hard commentators try to talk up the economy, we cannot escape the fact that oil demand is showing no signs of improving." They noted that "the harbingers of doom at the International Energy Agency" recently predicted a 2.6 million b/d drop in world oil demand in 2009, which was "larger even than the 2.5 million b/d fall seen in 1980."

KBC analysts said, "What is even more disturbing than the IEA's headline total is the fact that demand is down almost everywhere, with only India and Saudi Arabia of the world's top 10 oil markets showing any growth at all." They noted "a small glimmer of hope" as US crude inventories fell in the week ended May 8, the first decline in 10 weeks. "But this is straw-clutching," said KBC analysts. "Four-week average gasoline demand was down 1.2% on last year, and we might be optimistic in expecting much of a gasoline season this year."

In Houston, analysts at Raymond James & Associates Inc. said crude was higher in early trading May 18 as the market again turned optimistic. "According to the US Commodity Futures Trading Commission, crude speculators moved to a net long position last week from a net short position during the prior week," they said. They said natural gas prices also were "modestly higher" in early trading.

Analysts at Pritchard Capital Partners LLC, New Orleans, noted the Organization of Petroleum Exporting Countries is scheduled to meet May 28 in Vienna. "Since OPEC's last meeting, the consortium has lowered its global demand forecast by 1.3% to 84.03 million b/d, and the global oil supply rose in April for the first time since October 2008," they said. With demand down and supplies growing, analysts said, OPEC may decide to cut production again at its upcoming meeting. Anticipation of such a move could "provide support for crude at $50/bbl and keep crude confined to the $50-60/bbl range despite weak supply and demand fundamentals," they said.

Pritchard Capital Partners said, "The current US gas market is oversupplied by 1 bcfed; ultimately the rig count reductions will eliminate this amount of oversupply."

Energy prices
The June contract for benchmark US light, sweet crudes dropped $2.28 to $56.34/bbl May 15 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., fell the same amount to the same price. The July crude contract lost $2.42 to $57/bbl on NYMEX. Heating oil for June fell 7.59¢ to $1.42/gal. The June contract for reformulated blend stock for oxygenate blending (RBOB) declined 4.31¢ to $1.68/gal.

Natural gas for the same month fell 19.4¢ to $4.10/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 3¢ to $4.05/MMbtu.

In London, the July IPE contract for North Sea Brent crude dropped $2.61 to $55.98/bbl. Gas oil for June lost $5.25 to $467.50/tonne.

The average price for OPEC's basket of 12 reference crudes declined 38¢ to $56.37/bbl May 15. So far this year, OPEC's basket price has averaged $45.96/bbl.

Contact Sam Fletcher at [email protected].