MARKET WATCH Energy futures fall for fourth session

Energy futures prices fell Apr. 27 for the fourth consecutive session on the New York market as China's central bank raised a key lending rate in an effort to cool its economy.

April 28, 2006

3 min read

Sam Fletcher
Senior Writer

HOUSTON, Apr.28 -- Energy futures prices fell Apr. 27 for the fourth consecutive session on the New York market as China's central bank raised a key lending rate in an effort to cool its economy.

The People's Bank of China hiked its rate, for the first time since October 2004, by 0.27 percentage point to 5.85%.

Meanwhile, Chad resolved a 4-month dispute with the World Bank over its use of revenue from an oil program backed by the bank. Chad had threatened to shut off a pipeline transporting 100,000 b/d of crude after the World Bank froze millions of dollars of Chad's oil royalties in London banks.

However, Apr. 28 marked the United Nations Security Council's deadline for Iran to suspend a nuclear power program, so geopolitical pressures may soon ratchet up energy prices once more.

Energy prices
The June contract for benchmark US light, sweet crudes dropped 96¢ to $70.97/bbl Apr. 27 on the New York Mercantile Exchange. The July contract fell by $1.01 to $72.47/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., lost 96¢ to $70.98/bbl. Gasoline for May delivery dipped by 6.16¢ to $2.07/gal on NYMEX. Heating oil for the same month declined by 3.72¢ to $1.99/gal.

The June natural gas contract dropped 46.6¢ to $6.81/MMbtu on NYMEX, following a report by the Energy Information Administration that US underground storage of gas had increased more than expected (OGJ Online, Apr. 27, 2006). Analysts at Enerfax Daily, however, said important technical factors may play a crucial role in coming months.

Another analyst cited two developments in the US West likely to affect the gas market. "First, construction of the 1.8 bcfd, 1,323-mile Rockies Express pipeline from Wyoming to Ohio will link the gas-rich Rocky Mountains to markets in the Midcontinent. Distribution of the gas should have a strong impact on basis relationships between regions and ease supply concerns in eastern markets," said Ronald J. Barone, managing director of equity research for the Natural Gas & Electric Utilities Group of UBS Securities LLC, New York.

"Second, the construction of the Energia Costa Azul liquefied natural gas import terminal in Baja California will add another 1 bcfd of supply to the region. With Mexico building additional LNG import terminals, some pundits expect Mexican LNG capacity to grow faster than demand and make Mexico a net exporter of gas to the US by 2009 or 2010. Francisco Barnes of the Energy Regulatory Commission of Mexico, for example, believes that Mexico could begin supplying gas to the West Coast as early as next year," Barone reported.

In London, the May IPE contract for North Sea Brent crude lost $1.18 to $70.91/bbl. Gas oil for May fell $14 to 626.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes fell by $1.31 to $65.63/bbl on Apr. 27.

Contact Sam Fletcher at [email protected].