MARKET WATCH: Weak dollar lifts oil prices

Weakness of the dollar lifted the June 4 price of the front-month crude futures contract by 0.9% in the New York market, ending a four-session losing streak, while natural gas rose 3.8% on forecasts of warmer weather in June.

In Houston, analysts at Raymond James & Associates Inc. reported, “The broader markets ended the day down marginally as investor concern remained with lower US factory orders, while China’s nonmanufacturing industries expanded at the slowest pace in more than a year.” Both the Oil Service Index and the SIG Oil Exploration & Production Index finished the day down 0.2% amid continued concerns of a global economic slowdown.

However, markets appeared to improve in early trading June 5 following a telephone conference among finance chiefs of the world’s seven wealthiest nations to discuss the deteriorating economic crisis in the European Union. The Associated Press reported Germany’s finance minister continued to oppose reduction of austerity programs by the most financially troubled countries like Greece that are seeking bailouts of sovereign debts.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “With the UK on [spring bank] holiday yesterday, volume in Brent was half the levels of [June 1] but volume in West Texas Intermediate was healthy, and overall we are not in an ultrathin volume environment. The UK is again on holiday today.”

Jakob said, “With some refinery maintenance in Canada and the unplanned shutdown of one crude unit at BP [PLC's 405,000 b/d Whiting, Ind., refinery], the Canadian discount to WTI is widening again, and that means that we are getting much closer to the ‘value area’ in WTI where being structurally short the flat price of WTI is becoming much less of a no-brainer on fundamental economics due to its greater proximity to the marginal cost of production in Canada. Bottom picking is starting to show-up in WTI as evidenced by the largest inflows into the [United States Oil Fund LP’s exchange traded fund for WTI] since February.”

A 75,000 b d crude distillation unit, the smallest of three at the BP refinery, was shut down June 1 for repair. No restart date has yet been set.

Meanwhile, Jakob said, “We continue to believe Brent still faces a downside risk on its premium to WTI. That premium was eroding yesterday, and for part of the day the reduction of that spread was the main trading action.”

Energy prices

The July contract for benchmark US sweet, light crudes increased 75¢ to $83.98/bbl June 4 on the New York Mercantile Exchange. The August contract advanced 71¢ to $84.27/bbl. On the US spot market, WTI at Cushing, Okla., remained in step with the front-month futures contract, up 75¢ to $83.98/bbl.

Heating oil for July delivery dipped 0.1¢ but closed essentially unchanged at a rounded $2.63/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 1.39¢ to $2.67/gal.

The July natural gas contract climbed 8.9¢ to $2.42/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 8.5¢ to $2.32/MMbtu.

In London, the July IPE contract for North Sea Brent was up 42¢ to $98.85/bbl. Gas oil for June continued to fall, however, down $4.75 to $843/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost $1.96 to $95.48/bbl.

Contact Sam Fletcher at samf@ogjonline.com.