Market watch: Energy markets have mixed reactions

By the OGJ Online Staff

HOUSTON, July 12 -- Reactions were mixed on international energy futures markets Wednesday as traders interpreted two opposing reports of US petroleum inventories.

The American Petroleum Institute late Tuesday reported relatively small increases of 909,000 bbl of oil and 382,000 bbl of gasoline during last week (OGJ Online, July 11, 2001). But the US Department of Energy indicated early Wednesday a slight decline in those stocks. The two reports are compiled using different methodologies and frequently differ slightly.

Either way, US inventories of oil and refined petroleum products remain near historic lows, said analysts. But international traders claimed US inventories of both gasoline and oil are large enough to meet peak summer demand, barring any surprise disruptions.

On the New York Mercantile Exchange, the August contract for US benchmark light, sweet crudes lost 38¢ to $27.11/bbl Wednesday, while the September contract was down 39¢ to $26.69/bbl. Both contracts continued to slip in after-hours electronic trading to $26.80/bbl and $26.40/bbl, respectively.

Home heating oil for August delivery fell 1.74¢ to 70.59¢/gal, while unleaded gasoline for the same month inched up 0.37¢ to 73.08¢/gal.

The August contract for natural gas gained 6¢ to $3.34/Mcf on the NYMEX. Although natural gas futures prices have fallen sharply in recent weeks from previous levels above $4/Mcf, the current price is still a strong one by historic comparisons. However, many producers and investors are spooked by price uncertainties, one Houston-based upstream consultant told OGJ Online.

In a report issued Wednesday from his New York office, Robert Morris, energy analyst for Salomon Smith Barney Inc., said, "At this juncture, we can not point to any distinct catalyst other than a sharp rebound in the economy or a sustained heat wave across the country that would revive natural gas prices any time soon."

He said, "Although some firming is likely with the onset of any extended heat wave across the country, natural gas prices are not likely to be much above $3/MMBtu this fall and, in the worst case scenario, could approach $2.50/MMBtu."

US temperatures last week generally were 1.4% higher than the previous week but still 6.4% below year-ago temperatures and 8.6% below the 10-year average for that time of the year.

The American Gas Association reported 110 bcf of natural gas were injected into US underground storage last week, up from 105 bcf the previous week and 97 bcf a year ago.

In London, the August contract for North Sea Brent crude lost 41¢ to $25.52/bbl on the International Petroleum Exchange. The August natural gas contracted inched up 0.7¢ to the equivalent of $2.59/Mcf on the IPE.

The average price for the Organization of Petroleum Exporting Countries' basket of seven crudes lost 22¢ to $23.89/bbl Wednesday.

However, international oil expert Nicolas Sarkis said on Algerian radio Wednesday that it is unlikely that world oil prices will fall below OPEC's minimum target of $22/bbl this year if its members stick to their production agreement of 24.2 million b/d. He said OPEC members and integrated international oil companies both want to keep oil price around the $25/bbl level.