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 samf@ogjonline.com.