MARKET WATCH: Oil prices continue climbing as gas price drops

Oil prices continued rising with the front-month crude contract up 0.9% in the New York futures market May 16 despite a report from the US Department of Labor showing a rise in claims for unemployment benefits, stimulating worries about economic recovery.

The front-month natural gas contract, however, was “beaten down by a negative storage report and lost 3.4%,” said analysts in the Houston office of Raymond James & Associates Inc.

The Standard & Poor’s 500 Index was down 0.5%, closely followed by the SIG Oil Exploration & Production Index and the Oil Service Index, down 0.9% and 0.1%, respectively.

Barclays Capital Commodities Research analysts expect North Sea Brent “to continue hovering around the relatively weak $100/bbl range due to short-term lack of upward catalysts.” They said, “Retracement is now in sight, however, as tail end of the second quarter approaches. Gas prices regained the $4/MMbtu level early this week but came under pressure again…after the bearish storage injection.”

They also reported, “Exports of US gas to Mexico have doubled in the past 3 years. Continued growth of Mexican gas demand, coupled with a wave of pipeline capacity expansions, promises to siphon increasing amounts of gas from the US.”

US inventories

The Energy Information Administration reported the injection of 99 bcf of natural gas into US underground storage in the week ended May 10, exceeding Wall Street’s consensus for 94 bcf input. That increased working gas in storage to 1.964 tcf, down 694 bcf from the comparable period a year ago and 83 bcf below the 5-year average (OGJ Online, May 16, 2013).

With the storage deficit decreasing to 694 bcf for the year, gas prices have fallen from the highs of mid-April. “Some believe that prices are set to fall even further; however, in order to refill storage inventories to the 3.8-3.9 tcf level, we need the market to run 4 bcfd looser through the summer,” Raymond James analysts said. “While [the latest] number implies that the market was 5.7 bcfd looser, we fully expect that prices need to sustain the $4/Mcf level to spur enough gas to coal switching and fill up storage inventories.”

Energy prices

The June contract for benchmark US light, sweet crudes gained 86¢ to $95.16/bbl May 16 on the New York Mercantile Exchange. The July contract climbed 89¢ to $95.45/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 86¢ to $95.16/bbl.

Heating oil for June delivery increased 2.86¢ to $2.91/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 1.52¢ to $2.88/gal.

However, the June natural gas contract fell 13.8¢ to $3.93/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $4.01/MMbtu.

In London, the June IPE contract for Brent was up 12¢ to $103.80/bbl. Gas oil for June jumped $25 to $871.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained $1.19 to $100.85/bbl.

Contact Sam Fletcher at samf@ogjonline.com.