MARKET WATCH: Weak economic indicators bring down oil prices
Oil prices continued falling Apr. 4 after the US Department of Labor reported for the third consecutive week an increase in new applications for unemployment benefits. The front-month natural gas contract increased 1.2% in the New York market, however, despite a rather neutral update on US gas inventories.
DOL said new applications for unemployment benefits last week increased by 28,000 to a seasonally adjusted 385,000—the highest level since late November. Labor officials said the figures may have been affected by the Easter holiday, which varies annually making it difficult to adjust for school closings, and by other seasonal factors. Analysts speculated the rise indicated increased layoffs because of steep cuts in government spending. Some 5.3 million people collected unemployment benefits in the week ended Mar. 16, the latest data available (OGJ Online, Apr. 4, 2013).
On Apr. 5, DOL officials said US employers added only 88,000 new jobs in March, the lowest number in 9 months. Still, Labor officials reported the US unemployment rate declined to 7.6% from 7.7%, the lowest level in 4 years, primarily because more people have given up looking for work and are no longer counted as unemployed.
Equity markets fell in early trading after the latest report that retailers, manufacturers, and financial services reduced hiring in March. The Dow Jones Industrial Average was down 112 points at midday.
“Investors lamented the continuing economic quagmire,” said analysts in the Houston office of Raymond James & Associates Inc. “The bleak data weighed on oil prices, still reeling from the previous day's inventory-driven pummeling. At the close [of the Apr. 4 session], West Texas Intermediate futures were off by 1.3%.”
US inventories
The Energy Information Administration reported the withdrawal of 94 bcf of natural gas from US underground storage in the week ended Mar. 29, exceeding Wall Street’s consensus for a 92 bcf out-take. That left 1.687 tcf of working gas in storage, down 779 bcf from year-ago level and 37 bcf below the 5-year average (OGJ Online, Apr. 4, 2013).
“Excluding weather-related demand, there was 400 MMcfd of natural gas added to storage [last] week compared with last year, and we have averaged 400 MMcfd looser over the past 4 weeks. The run-up in gas prices to the nearly $4/Mcf level has clearly led coal to gain some share back vs. gas. While winter withdrawal season is officially over, that doesn't mean it's the end of withdrawals,” Raymond James analysts said.
They reported, “This has gas inventories on track to bottom at 1.65-1.75 tcf, a substantial improvement over last year's levels and more in line with 5-year norms. As we slip into the seasonally weaker shoulder season, we would expect some pressure to come off of the gas market until we enter the summer cooling season, potentially resulting in a pullback in natural gas prices. Either way, the market dynamics have clearly changed to a less bearish outlook.”
Energy prices
The May contract for benchmark US light, sweet crudes dropped $1.19 to $93.26/bbl Apr. 4 on the New York Mercantile Exchange. The June contract lost $1.21 to $93.56/bbl. On the US spot market, WTI at Cushing, Okla., also was down $1.19 to $93.26/bbl.
Heating oil for May delivery decreased 3.84¢ to $2.96/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 1.53¢ to $2.90/gal.
The May natural gas contract recovered 4.7¢ to $3.95/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., continued its retreat, down 5.8¢ to $3.96/MMbtu.
In London, the May IPE contract for North Sea Brent lost 77¢ to $106.34/bbl. Gas oil for April fell $24.75 to $888/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped $2.59 to $104.21/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.