MARKET WATCH: Oil, gas prices increase as US dollar weakens

Oil and natural gas prices on Sept. 22 regained some of the losses of the previous trading sessions as the US dollar weakened.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 23 -- Oil and natural gas prices on Sept. 22 regained some of the losses of the previous trading sessions as the US dollar weakened.

“Crude broke its 4-day decline streak with a 2.6% rise, largely off of the dollar's dive to its lowest level vs. the euro since exactly 1 year ago today,” said analysts in the Houston office of Raymond James & Associates Inc. Accordingly, any news out of the Federal Reserve that ends today and the G-20 meeting that begins today in Pittsburgh “could have major ramifications for the dollar and thus commodity prices,” they said.

Olivier Jakob at Petromatrix in Zug, Switzerland, also noted the dollar index was “exactly at the same level as a year ago” when the price of benchmark US light crude was at $109/bbl. “The problem, however, is that US petroleum stocks are at least 140 million bbl above the levels of a year ago, and it will require some tighter oil fundamentals before the dollar correlation can be traded on a medium term rather than just as day-trading play,” Jakob said. “All of the dollar trade of yesterday was done outside of the New York Mercantile Exchange open session, when liquidity is lower [and] hence when the black boxes [technical trading] have a greater chance of making the market.”

In New Orleans, analysts at Pritchard Capital Partners LLC said, “The trading pattern of oil is almost getting too predictable [as it] remains glued to $70/bbl level. Crude gained support from a weaker US dollar and continued signs that China’s demand for crude continues to show growth—China’s oil demand rose 2.9% in August 2009 vs. August 2008 and was the fifth consecutive rise. The market still lacks convincing signs of a turnaround in the developed world.”

Natural gas ended the day “effectively unchanged,” said Pritchard Capital Partners. The first glimmer of industrial demand for natural gas surfaced [Sept. 22] when General Motors announced it planned to add a third shift at three of its US assembly plants. We expect natural gas production to fall 4 bcf over the next 4-6 months due to the rig count decline and well decline rates, and this drop in production could coincide with a gradual industrial recovery—provided the GM pick-up is indicative of overall industrial activity. A pick-up in industrial activity combined with a decline in natural gas production could make a price recovery in natural gas faster and more violent then most expect,” they warned.

US inventories
The Energy Information Administration said Sept. 23 commercial US crude inventories increased 2.8 million bbl to 335.6 million bbl in the week ended Sept. 18, exceeding the American Petroleum Institute’s earlier estimate of a 2.2 million bbl increase and well beyond the Wall Street consensus for a 1.4 million bbl drop. Gasoline stocks jumped by 5.4 million bbl to 213.1 million bbl in the same period, surpassing Wall Street’s consensus for a 500,000 bbl increase. Distillate fuel inventories escalated 3 million bbl to 170.8 million bbl, twice the increase of the Wall Street consensus.

Imports of crude into the US increased 891,000 b/d to 9.8 million b/d last week. Input of crude into US refineries, however, dropped 316,000 b/d to 14.7 million b/d with units operating at 85.6% of capacity. Gasoline production decreased to 8.9 million b/d while distillate fuel production increased to 4.2 million b/d.

Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, said, “Light product inventories (gasoline plus distillate plus jet fuel) jumped 9.4 million bbl (2.2%) last week, the largest weekly gain of the year, and gasoline (up 9%) and distillate (up 27%) inventories are both well ahead of the 5-year average for this calendar week. Additionally, demand fell to the lowest weekly level since Jan. 4, 2004, a major negative for the sector. We remain cautious on the near-term outlook for the refining sector.”

Energy prices
The expiring October contract regained $1.84 to $71.55/bbl Sept. 22 on NYMEX. The November contract increased $1.83 to $71.76/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.84 to $71.55/bbl. Heating oil for October delivery climbed 6.04¢ to $1.81/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month advanced 3.02¢ to $1.78/gal.

The October contract for natural gas escalated 3.3¢ to $3.61/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 0.5¢ to $3.37/MMbtu.

In London, the October IPE contract for North Sea Brent was up $1.84 to $70.53/bbl. Gas oil for October gained $12.75 to $572/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 17¢ to $68.59/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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