MARKET WATCH: Improved economics, Mideast unrest boost oil prices

July 2, 2013

Continued unrest in Egypt and signs of economic improvement overall helped boost oil prices July 1 with crude up 1.5% in the New York futures market.

Sam Fletcher

Continued unrest in Egypt and signs of economic improvement overall helped boost oil prices July 1 with crude up 1.5% in the New York futures market.

“Oil markets were supported by a confluence of growing optimism over the US economy and heightened geopolitical concerns amid protests in Egypt,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. West Texas Intermediate benefitted more than North Sea Brent, “given that it is demand prospects in the US that are driving oil markets, especially now [with] concerns over slowing economic activity in Asia.” Ground reported, “The Brent-WTI spread narrowed to below $5/bbl yesterday, the lowest intraday level since January 2011. The spread closed just above this mark at $5.01/bbl.”

The latest US Commodity Futures Trading Commission numbers for the week ended June 25 showed while oil markets did not succumb to pre-Federal Open Market Committee [the policy-making arm of the Federal Reserve Bank] fears, “they certainly were hit by post-FOMC concerns,” said Ground. “Net speculative length dropped a remarkable 25.5 million bbl—the largest drop since April. Most of this was an unwinding of speculative longs—28.7 million bbl, undoing the 25.9 million bbl gain of the preceding week. Speculative shorts also continued to fall (for the fourth consecutive week), albeit mildly, at 3.2 million bbl.”

Analysts in the Houston office of Raymond James & Associates Inc. reported, “Broader markets also showed some optimism yesterday, with encouraging US manufacturing data following positive reports out of Europe and Japan sending the Dow Jones Industrial Average up 0.4% on a sleepy week ahead of the July 4^th holiday. Factory orders and vehicle sales could provide some direction today, but eyes are pointed towards [the July 5] jobs report.”

Energy stocks outperformed the rest of the equity market with the Oil Service Index up 1.2% and the SIG Oil Exploration & Production Index gaining 0.8%.

Energy prices

The August contract for benchmark US sweet, light crudes climbed $1.43 to $97.99/bbl July 1 on the New York Mercantile Exchange. The September contract rose $1.44 to $97.88/bbl. In a rare move on the US spot market, WTI at Cushing, Okla., broke its normal lock-step with the front-month crude futures contract, dropping 49¢ to $96.07/bbl, officials reported.

The new front-month August contract for heating oil increased 1.48¢ to $2.87/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 2.23¢ to $2.74/gal.

The August natural gas contract gained 1.2¢ to $3.58/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 2.7¢ to $3.53/MMbtu.

In London, the August IPE contract for Brent was up 84¢ to $103/bbl. Gas oil for July was unchanged at $883.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 68¢ to $100.10/bbl.

Contact Sam Fletcher at [email protected].

About the Author

Sam Fletcher | Senior Writer

I'm third-generation blue-collar oil field worker, born in the great East Texas Field and completed high school in the Permian Basin of West Texas where I spent a couple of summers hustling jugs and loading shot holes on seismic crews. My family was oil field trash back when it was an insult instead of a brag on a bumper sticker. I enlisted in the US Army in 1961-1964 looking for a way out of a life of stoop-labor in the oil patch. I didn't succeed then, but a few years later when they passed a new GI Bill for Vietnam veterans, they backdated it to cover my period of enlistment and finally gave me the means to attend college. I'd wanted a career in journalism since my junior year in high school when I was editor of the school newspaper. I financed my college education with the GI bill, parttime work, and a few scholarships and earned a bachelor's degree and later a master's degree in mass communication at Texas Tech University. I worked some years on Texas daily newspapers and even taught journalism a couple of semesters at a junior college in San Antonio before joining the metropolitan Houston Post in 1973. In 1977 I became the energy reporter for the paper, primarily because I was the only writer who'd ever broke a sweat in sight of an oil rig. I covered the oil patch through its biggest boom in the 1970s, its worst depression in the 1980s, and its subsequent rise from the ashes as the industry reinvented itself yet again. When the Post folded in 1995, I made the switch to oil industry publications. At the start of the new century, I joined the Oil & Gas Journal, long the "Bible" of the oil industry. I've been writing about the oil and gas industry's successes and setbacks for a long time, and I've loved every minute of it.