MARKET WATCHCrude futures prices climb as gas futures fall

Sam Fletcher
Senior Writer

HOUSTON, Aug. 2 -- Natural gas futures prices fell in profit taking Aug. 1 on the New York market, but oil prices continued to climb with continued fighting in the Middle East and a tropical storm that is expected to reach hurricane strength as it moves into the Gulf of Mexico.

"The oil front looks to be business as usual (at least with respect to what we've seen in recent weeks)," said analysts in the Houston office of Raymond James & Associates Inc. "Israel continues to bomb Lebanon, Nigeria continues to lose production, and Iran continues to defy international pressure to halt uranium enrichment. It doesn't seem like anything is going to reach resolution anytime soon."

Gas prices were rolled back Aug. 1 but rebounded in early trading Aug. 2 "on hurricane fears and continued hot weather in the Northeast," Raymond James analysts said. Tropical Storm Chris registered sustained winds of 65 mph and was moving west-northwest at 10 mph at that time. The storm is projected to move into the gulf by Aug. 7, "as far south as Cuba [or] as far north as central Florida," analysts said.

"Any platform closings and production curtailments due to the approaching storm could substantially help reduce the gas storage surplus and help send gas prices closer to their energy parity with crude," they said.

US gas storage inventories at the end of the winter withdrawal season on Mar. 31 were at the highest level in the past decade at 1.9 tcf, 36% higher than the previous 2002 peak, said Ziff Energy Group, Calgary, in a separate report Aug. 2.

Storage had increased to 3.1 tcf of gas by July 28, representing 91% of colder-than-normal requirements for North America. Assuming gas injections are not disrupted by a hurricane that reduces offshore production, Ziff said, "Storage will likely be filled early which could have significant impacts on gas prices and financial results of natural gas producers. Producers may want to implement plans to minimize this potential impact."

Oil inventories
After registering no change the previous week, commercial US inventories of crude fell by 1.8 million bbl to 333.7 million bbl in the week ended July 28, the US Energy Information Administration reported Aug. 2. Gasoline stocks dipped by 100,000 bbl to 210.9 million bbl during the same period, while distillate fuel increased by 700,000 bbl to 132.6 million bbl, with an increase in heating oil offsetting a decrease in diesel.

Imports of crude into the US declined by 76,000 b/d to 10.4 million b/d during that that same period. The input of crude into US refineries fell by 301,000 b/d to 15.5 million b/d, with refineries operating at 90.8% of capacity. Gasoline production decreased slightly to 9 million b/d, and distillate fuel production was relatively unchanged at 3.8 million b/d.

Energy prices
The September contract for benchmark US light, sweet crudes closed at $74.91/bbl, up by 51¢ for the day after trading at $74.02-75.45/bbl during the Aug. 1 session of the New York Mercantile Exchange. The October contract increased by 50¢ to $76.18/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., gained 51¢ to $74.92/bbl. Gasoline for September delivery jumped by 6.44¢ to $2.28/gal, with TS Chris posing a distant threat to Gulf Coast refining and crude production. Heating oil for the same week rose by 4.28¢ to $2.08/gal. However, the September gas contract fell by 63.7¢ to close at $7.47/MMbtu, rolling back most of the gains from the previous session as that contract traded at $7.45-8.62/MMbtu Aug. 1 on NYMEX.

In London, the September IPE contract for North Sea Brent crude gained 74¢ to $75.89/bbl. Gas oil for August delivery increased by $12.25 to $644.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes jumped by $1.55 to $69.97/bbl on Aug. 1

Contact Sam Fletcher at [email protected].