MARKET WATCHReduced demand undercuts energy prices
Sam Fletcher
Senior Writer
HOUSTON, May 16 -- Crude futures prices dropped below $70/bbl in New York and London markets on May 15 amid indicators that high prices may now be reducing demand.
Analysts said the sell-off of crude futures was triggered by the People's Republic of China's setting a key currency trading benchmark that will enable the yuan to appreciate faster. Traders fear that move could slow the growth of Chinese demand for crude by increasing costs.
Crude futures prices fell last week after the University of Michigan consumer sentiment index dropped to 79 for May—the lowest level since October—from 87.4 in April. Its monthly current-conditions index registered the biggest loss since 1978, down by 13 points to 96.2 (OGJ Online, May 15, 2006).
In an earlier report, the International Energy Agency (IEA) in Paris reduced its 2006 estimate of the growth of world demand for crude by 220,000 b/d, or 15%, primarily because of weaker US demand as a result of high fuel prices and large exports of crude from former Soviet countries, indicating lower demand in that region (OGJ Online, May 12, 2006).
On the other hand, Mohammed Barkindo, acting secretary general for the Organization of Petroleum Exporting Countries, said this week that the world economy has been surprisingly resilient to high crude prices. He said OPEC members have increased crude supply by 4.5 million b/d since 2002 and plan to hike it by a further 5 million b/d through 2010.
In a separate interview, Ali Ibrahim al-Naimi, Saudi Arabia's oil minister, predicted world demand for crude would hit 100 million b/d by 2015, up from current consumption estimated by IEA at 85 million b/d.
Energy prices
The June contract for benchmark US light, sweet crudes fell by $2.63 to $69.41/bbl May 15 on the New York Mercantile Exchange. The July contact was down by $2.81 to $70.47/bbl with prices for subsequent contracts still in a rising, or contango, pattern into 2007. On the US spot market, West Texas Intermediate lost $2.63 to $69.42/bbl. Gasoline for June delivery dropped 12.45¢ to $2.05/gal on NYMEX. Heating oil for the same month retreated by 10.17¢ to $1.95/gal.
The June natural gas contract fell by 15.7¢ to $6.12/MMbtu on NYMEX, with "below-normal temperatures and plenty of rain" in eastern markets and "despite the complete shutdown of the Sable Offshore Energy Project's 400 MMcf production," said analysts at Enerfax Daily.
In London, the June IPE contract for North Sea Brent crude dropped $2.65 to $69.67/bb. Gas oil for June lost $27 to $619/tonne.
The average price for OPEC's basket of 11 benchmark crudes fell by $2.35 to $64.67/bbl on May 15.
Contact Sam Fletcher at [email protected].