MARKET WATCH: Oil, petroleum products prices inch higher

Crude and petroleum products prices inched higher Aug. 28 while natural gas futures prices retreated in the New York market amid mixed economic signals.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 31 -- Crude and petroleum products prices inched higher Aug. 28 while natural gas futures prices retreated in the New York market amid mixed economic signals.

Benchmark US crude futures “traded the week in a perfect $70-75/bbl range,” failing to break through the top of the range, then testing and failing to break through the bottom, and finally finishing the week by closing “very close to the mid-range of $72.50/bbl,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

Crude and other commodities were down in early trading Aug. 31, however, as weakness in Asian markets pressured US equities. “Markets in Japan, Asia's second largest consumer of oil, were down upon news that Japanese manufacturers only increased output by 1.9% in July after posting a 2.3% increase in June,” said analysts in the Houston office of Raymond James & Associates Inc. “Additionally, a strengthening dollar has helped push oil down below $72/bbl.”

Raymond James reported, “With the left-of-center Democratic Party set to form Japan's new government after its landslide victory on Sunday, Japanese climate change policy is likely to become more ambitious, i.e., more aligned with Europe. Historically, Japan has been closer to the US in taking an ambivalent stance on climate issues. While Japan already has some of the world's highest levels of energy efficiency, there is room for more prorenewables policies. Also, Japan is likely to play a more active role in the global climate talks leading up to the Copenhagen conference in December.”

In New Orleans, analysts at Pritchard Capital Partners LLC said, “There was further evidence that the contango trading is continuing to unwind.” Norway’s Frontline, the largest independent oil tanker shipping group, estimated that 40-45 very large crude carriers (VLCCs), or 10% of the world fleet, were storing crude oil, down from a peak of 60 VLCCs that were storing crude in April. “This gradual unwind appears to be flattening of the crude curve and will most likely lead to lower volatility across the crude curve,” said Pritchard Capital Partners. “The spread between the front-month crude contract and the 12-month crude contract is less than $6, down from a high of $15 seen earlier in the year.”

In other news, the US Energy Information Administration revised upward by 339,000 b/d, or 1.84%, its earlier estimate of US oil demand in June to 18.76 million b/d. However, the revision is still 4.65% lower than last year’s demand level of 19.68 million b/d in the same period.

Energy prices
The October contract for benchmark US light, sweet crudes increased 25¢ to $72.74/bbl Aug. 28 on the New York Mercantile Exchange. The November contract increased 32¢ to $73.46/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 25¢ to $72.74/bbl. Heating oil for September inched up 0.11¢ but remained virtually unchanged at an average $1.86/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month climbed 3.04¢ to $2.06/gal.

The new front-month October natural gas contract dropped 17.3¢ to $3.03/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 20¢ to $2.52/MMbtu. “The spot market for natural gas continues to hit new lows,” said Raymond James analysts.

Pritchard Capital analysts said, “The number of experts suggesting the low natural gas price presents an investment opportunity in natural gas exploration and production companies will be probably proven correct in the long run, but the fact so many are making bullish calls implies that the downtrend in natural gas could continue before we see a true reversal in natural gas. The bottoming process many thought was in place over the first 6 months of the year—we were in this camp—clearly broke 1 week ago and on a long-term natural gas chart the next level of support is $2. Natural gas may or may not reach that level, but it is a level some technical traders are targeting. A contrarian might argue that with so many declaring the bottom in natural gas is near, staying short is a safe bet.”

In London, the October IPE contract for North Sea Brent crude increased 28¢ to $72.79/bbl. Gas oil for September gained $15.75 to $596.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained $1.36 to $71.72/bbl on Aug. 27. So far this year, OPEC’s basket price has averaged $55.15/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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