MARKET WATCH: Energy prices mixed on indecisive markets

Energy prices were mixed June 25, with crude prices first falling on news of the end of a general strike in Nigeria and then rebounding on reports of setbacks in the Venezuelan government's attempts to take control of heavy oil projects in that country while keeping as partners the major international oil companies that have been operating those projects.

Sam Fletcher
Senior Writer

HOUSTON, June 26 -- Energy prices were mixed June 25, with crude prices first falling on news of the end of a general strike in Nigeria and then rebounding on reports of setbacks in the Venezuelan government's attempts to take control of heavy oil projects in that country while keeping as partners the major international oil companies that have been operating those projects.

The 4-day general strike in Nigeria ended June 23 with no additional disruption of oil exports (OGJ Online, June 25, 2007).

However, analysts in the Houston office of Raymond James & Associates Inc. said, "Talks between the [President Hugo] Chavez administration and ExxonMobil Corp. and ConocoPhillips have soured, and the two oil majors may be close to withdrawing completely from Venezuela. This could potentially limit the development of four heavy-crude projects, which can produce 600,000 b/d from the Orinoco reserve."

Raymond James analysts also reported that oil prices dropped slightly in early trading June 26 "on expectations that US crude stockpiles, already above their 5-year average, likely increased for a fourth straight week" through June 22. "Rising crude oil imports are expected to contribute to the build of the relatively high levels of US stockpiles," they said. Meanwhile, officials of the Organization of Petroleum Exporting Countries cited ample crude supplies worldwide in dismissing a recent call by the International Energy Agency in Paris for increased production (OGJ Online, June 25, 2007).

In trading on the New York market, benchmark US crudes were "dominated by technical trading within last week's support and resistance lines," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "The week started at the same levels as the start of last week and as soon as we approached the support lines ($67.50/bbl) it was mechanically brought back to test (but could not break) the resistance of $69.50/bbl," he said. Benchmark US crudes and North Sea Brent crude have been trading a narrow range for the last four sessions "where the highs and lows are routinely tested on a daily basis," Jakob said June 26.

In other news, Raymond James analysts said Cosan Ltd.—the largest Brazilian ethanol producer—filed June 25 for an initial public offering that would make it the first Brazilian ethanol company to trade on a US exchange. The company already trades publicly in Brazil.

"We believe this listing—following four US ethanol IPOs in the past year, including one earlier this month—provide another example of US investor interest in ethanol," the analysts said. "Brazilian ethanol, which is derived from sugarcane, is more energy-efficient than US corn ethanol, although corn ethanol also has a positive net energy balance. On a related note, the media reported that Archer Daniels Midland Co. [the largest US manufacturer of ethanol] may be considering a bid for Cosan, which if true, would be the largest ethanol company takeover in history and among the few examples of ethanol [mergers and acquisitions] in recent years."

Energy prices
The August contract for benchmark US light, sweet crudes traded at $67.55-69.45/bbl June 25 on the New York Mercantile Exchange before closing at $69.18/bbl, up 4¢ for the day. The September contract slipped by 3¢ to $69.77/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 4¢ to $68.94/bbl. Heating oil for July delivery dipped 0.44¢ but its closing price was virtually unchanged at $2.04/gal on NYMEX. The July contract for reformulated blend stock for oxygenate blending (RBOB) gained 1.59¢ to $2.30/gal.

The July natural gas contract fell 19¢ to $6.94/MMbtu, the sixth consecutive decline for that contract on NYMEX as forecasters continue to project mild weather in key demand areas during the peak summer months. On the US spot market, natural gas at Henry Hub, La., dropped 20¢ to $6.83/MMbtu. Petromatrix's Jakob said natural gas continues as "the weak link," having lost 12.3% of its price over the last six trading sessions.

In London, the August IPE contract for North Sea Brent crude increased by 18¢ to $71.36/bbl. The July gas oil contract fell by $8.75 to $622/tonne.

The average price for OPEC's basket of 11 benchmark crudes dropped 7¢ to $67.28/bbl on June 25.

Contact Sam Fletcher at samf@ogjonline.com.

More in General Interest