MARKET WATCHJuly crude futures temporarily top $70/bbl

June 19, 2006
Crude prices rose June 16 for the third consecutive session, temporarily topping $70/bbl in early trading on the New York market before pulling back.

Sam Fletcher
Senior Writer

HOUSTON, June 19 -- Crude prices rose June 16 for the third consecutive session, temporarily topping $70/bbl in early trading on the New York market before pulling back.

"We stay with our current view that the oil market has generally run its bull course and will not be able to sustain prices above $75/bbl," said Olivier Jakob, managing director of Petromatrix GMBH in Zug, Switzerland. In a June 19 report, he noted "the negative impact on global demand (and not just on oil demand) resulting from the high commodity prices."

Crude prices dropped sharply early last week as Tropical Storm Alberto veered away from the oil and gas producing areas of the Gulf of Mexico. Traders' worries over inflation and economic slowdown helped spur a sell-off in all commodities.

A larger-than-anticipated draw on US crude inventories in the week ended June 9 strengthened last week's market although gasoline stocks rose more than expected. "Interestingly, comments by Iran's president at the end of last week that a proposal by Western allies to end a standoff over its nuclear program was a 'step forward' seemed to be offset by a renewed outlook for continued demand growth as US consumer confidence rose for the first time in 3 months," said Robert S. Morris, Banc of America Securities LLC, New York.

Analysts in the Houston office of Raymond James & Associates Inc. saic, "Crude oil is lacking catalysts in the near term, as most geopolitical events that we keep tabs on are in the resolution phase."

In a separate report they said, "Natural gas was last week's story, as bullish injection numbers drove the shorts to cover their positions and caused prices to spike up over 10% closer to the $7/Mcf equivalent range. This injection materialized even as US electricity consumption decreased sequentially as compared to historical increases for last week."

The Energy Information Administration reported a smaller-than-expected injection of 77 bcf of gas into US underground storage in the week ended June 9 (OGJ Online, June 15, 2006). That "lower-than-consensus injection was not due to any sudden up-tick in demand, in our view, but rather continued 'line pack' issues that have constrained production and deliverability to storage," Morris said.

Energy prices
The July contract for benchmark US light, sweet crudes traded as high as $70.45/bbl during the early June 16 session on the New York Mercantile Exchange before closing at $69.88/bbl, up 38¢ for the day. The August contract gained 27¢ to $70.20/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by 38¢ to $69.88/bbl. Heating oil for July delivery dipped by 0.45¢ to $1.93/gal on NYMEX. Gasoline for the same month slipped by 0.14¢ to continue hovering around $2.04/gal.

After gaining sharply in two previous trading sessions, the July natural gas contract dropped 2.2¢ to $7.19/MMbtu June 16 on NYMEX.

In London, the August IPE contract for North Sea Brent gained 35¢ to $68.80/bbl. Gas oil for July fell by $9.25 to $609.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes declined by 8¢ to $63.02/bbl on June 16. So far this year, OPEC's basket price has averaged $60.91/bbl, up from an average $50.64/bbl for all of 2005.

Contact Sam Fletcher at [email protected].