MARKET WATCH: Crude futures price tops $70/bbl

Worries about gasoline supplies pushed energy prices higher June 29 on the New York Mercantile Exchange, with the front month crude contract closing above $70/bbl for the first time since last August.

Jul 2nd, 2007

Sam Fletcher
Senior Writer

HOUSTON, July 2 -- Worries about gasoline supplies pushed energy prices higher June 29 on the New York Mercantile Exchange, with the front month crude contract closing above $70/bbl for the first time since last August.

"Crude oil has now been able to confirm a break out of the $70/bbl barrier that was keeping it in check since the beginning of the second quarter," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "If it is able to confirm the momentum [June 28-29 markets were influenced by end of the quarter volatility] it would now set the next technical target at $75/bbl in a repeat of the July 2006 dynamics," he said.

The price of crude dipped slightly in premarket electronic trading July 2 but was still trading near a 10-month high after three consecutive weekly gains. Analysts in the Houston office of Raymond James & Associates Inc. said, "The low refinery utilization and strong demand leading up to Independence Day [July 4] have been the driving forces behind the bullish move" in energy prices.

Meanwhile, Robert S. Morris, Banc of America Securities LLC, New York, reported: "With no news along the tropical storm front, disappointing temperature forecasts and a larger-than-projected natural gas storage [injection] figure [for the week ended June 22], the near-month NYMEX futures contract natural gas price fell to a 5-month low while the 12-region composite spot cash price dropped to below $6.45/MMbtu for the first time since late-March."

The higher-than-expected storage injection "was primarily in the consuming east region, where injections have been in a very narrow range of 60-67 bcf over the last 8 weeks despite cooling degree days steadily increasing from 10 to 45," Morris said. "It would appear that perhaps temperatures in the East have thus far not risen enough to begin to drive demand higher, or conversely, storage injections lower in some linear correlation to cooling degree days. Regardless, last week's injection continued to affirm our assessment that a looser supply-demand balance, apart from weather, exists vs. 1 year ago. Thus, even after the extreme temperatures in April and May, the current year-over-year storage deficit of 90 bcf essentially matches where it stood exiting the winter at the end of March," he said.

Energy prices
The August contract for benchmark US light, sweet crudes increased by $1.11 to $70.68/bbl June 29 on NYMEX. The September contract advanced by $1.12 to $70.98/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.12 to $70.69/bbl. The expiring July contract for reformulated blend stock for oxygenate blending (RBOB) gained 2.75¢ to $2.29/gal on NYMEX. Heating oil for the same month increased 1.36¢ to $2.03/gal.

The August natural gas contract escalated 11.8¢ to $6.77/MMbtu on NYMEX. On the US spot market, however, natural gas at Henry Hub, La., fell 37¢ to $6.40/MMbtu. Raymond James analysts said, "Natural gas is currently trading 6.5% lower than it was this time last week. Mild weather across the country led to a surprisingly large storage injection and [LNG] imports remain high."

In London, the August IPE contract for North Sea Brent crude rose 89¢ to $71.41/bbl. The July gas oil contract dropped 50¢ to $626/tonne.

Jakob said, "The premium of Brent over WTI has lost $1.31/bbl during the week and is trending back to a more normal relationship compared to the exceptional situation of the previous months. With US refineries expected to be back to more normal capacity utilization, the US crude import requirements should start to increase and the stock overhang should reduce."

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes gained 30¢ to $67.88/bbl. So far this year, the OPEC basket price has averaged $59.70/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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