MARKET WATCH: Economy problems drop oil prices below $72/bbl

Sam Fletcher
Senior Writer

HOUSTON, Aug. 10 -- Crude prices dropped below $72/bbl Aug. 9 as central banks around the world injected more cash into the financial system to shore up credit markets.

"Crude oil traded near a 1-month low on worries that US demand would decline if financial market problems would hurt economic growth," said analysts in the Houston office of Raymond James & Associates Inc.

However, natural gas prices jumped nearly 6% in the New York commodities market after the Energy Information Administration reported a smaller-than-expected injection of 42 bcf into US underground storage in the week ended Aug. 3 (OGJ Online, Aug. 9, 2007). Forecasts of a heat wave across the eastern US added to the gas market's gains, as traders scrambled to cover short positions. "Energy demand in the US is expected to run 26% above normal during the next week," said analysts at Enerfax Daily.

The Commodity Futures Trading Commission reported noncommercial short-interest positions in gas futures exceeded long positions by 71,000 at the end of last week. "Short-interest trading [buying an offsetting contract to one already sold] in the market is even higher than it was following the hurricanes of 2005, when industrial demand plummeted," Enerfax Daily analysts said. As a result, they said, "Any kind of hurricane activity at all is going to spark a rally in prices primarily because of short-covering."

Meanwhile, the National Oceanic and Atmospheric Administration reduced its prediction for the 2007 hurricane season to 16 tropical storms, with 9 likely to become hurricanes. It earlier forecast 17 tropical storms, with 10 becoming hurricane strength. It still says 3-5 of the hurricanes could be strong. No hurricanes have yet appeared since the season began in July, but August and September are historically the prime months for hurricanes.

Energy prices
The September contract for benchmark US light, sweet crudes dropped as low as $70.50/bbl in intraday trading Aug. 9, the lowest price for a front-month since July 5 on the New York Mercantile Exchange. However, it closed at $71.59/bbl, down 56¢ for the day. The October contract retreated by 54¢ to $71.40/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 58¢ to $71.60/bbl. The September contract for reformulated blend stock for oxygenate blending (RBOB) slipped by 0.37¢ to $1.93/gal. Heating oil for the same month gained 2.24¢, however, to $1.99/gal.

The September natural gas contract jumped by 36.6¢ to $6.59/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La. increased 21¢ to $6.52/MMbtu.

In London, the September IPE contract for North Sea Brent crude lost 78¢ to $70.21/bbl. Gas oil for August gained $2.50 to $619.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 reference crudes dropped 30¢ to $67.26/bbl on Aug. 9.

Contact Sam Fletcher at [email protected].