MARKET WATCH: Gas, oil prices slip lower

Natural gas futures prices hit a 6-week intraday high Sept. 17 on the New York market before slumping as traders took profits from the recent rally, while crude prices flattened following a decline in equity markets.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 18 -- Natural gas futures prices hit a 6-week intraday high Sept. 17 on the New York market before slumping as traders took profits from the recent rally, while crude prices flattened following a decline in equity markets.

“After a 3-day run, the [equity] market ran out of energy and dipped slightly into negative territory for just the second time in 10 trading sessions. As usual, oil followed suit and ran out of momentum after climbing close to its 2009 high ($74.37/bbl),” said analysts in the Houston office of Raymond James & Associates Inc.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The pattern seen since June continues. West Texas Intermediate goes higher together with the equity markets on the principle of higher future demand linked to the economic recovery but hits a wall before $75/bbl as it is then caught back by the low product cracks on the principle of low current demand linked to still high stock level.”

He said, “The price action of the last 4 months gives some credence to the King of the Saudis statement that the fair price equilibrium for crude oil is around $70-75/bbl.”

In New Orleans, analysts at Pritchard Capital Partners LLC summed it up: “A decline in weekly jobless claims, housing starts rising to the highest level since November, and the Philadelphia Fed’s September survey jumping to 14.1 vs. the 8 consensus and 4.2 in August, were offset by a stronger US dollar and a pullback in equities. We expect crude will continue to trade in a $60-75/bbl range despite record product stocks given our expectations for a weak dollar and continued demand from China, which yesterday announced it would invest $16 billion in an oil exploration project in the Orinoco River region in Venezuela.”

Pritchard Capital Partners noted, “Gas gave back a bit of its 56% advance from its bottom despite last week’s injection of 66 bcf [in Us underground storage] coming in below the 77 bcf consensus forecast and its 5-year 82 bcf average; storage now stands at 3.458 tcf, which is 13%, or 475 bcf, above its 5-year average.”

They also reported, “The CME Group Inc. announced that [on Sept. 15] the daily volume of 404,450 contracts set a new record, indicating that volatility will continue to result in significant price swings in natural gas.”

On Sept. 17, exploration and production executives asked US representatives to consider natural gas as a clean alternative to coal and diesel. “This is following several key industry lobbyists who have expressed the ‘cash for coal’ thesis to buy the dirtiest coal plants, mothball them, and then replace them with natural gas-fired plants. In this scenario and with further switching for transportation, the addressable market could exceed 120 bcfd, more than double the current demand,” said Pritchard Capital analysts.

Meanwhile, September reports from the International Energy Agency, the Energy Information Administration, and the Organization of Petroleum Exporting Countries “generally suggest some ongoing improvement in still frail supply and demand,” said Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC.

Sieminski said, “In our view, oil prices have been rising because of the weakness in the US dollar and the strength in equity market indices. The ‘traditional fundamentals’ are not especially supportive. If global economic growth slips a bit in mid-2010, oil prices should follow.”

In the interim, said Pritchard Capital analysts, “Surging equity prices and sharply improved high yield markets could become a catalyst for another spate of equity and debt offerings with fall bank redeterminations underway and hedge positions reduced for nearly all of our coverage companies in 2010. The landscape is changing dramatically for E&P companies with drilling economics benefiting from a lower cost curve (many plays economic below $4.50/Mcf gas prices based on recent company presentations). At the same time banks are now pushing E&P companies to rely less on their bank lines. We have heard a number of E&Ps tell us that commercial banks are signing new deals with 3-year terms rather than the traditional 5-year terms. This would imply that E&Ps will be unlikely to consider bank lines as long-term financing for acquisitions or development to be sure. Also, the number of high yield issuers in 2010 will likely increase as a result.”

Energy prices
The October contract for benchmark US light, sweet crudes traded as high as $73.16/bbl Sept. 17 on the New York Mercantile Exchange before closing at $72.47/bbl, down 4¢ for the day. The November contract increased 7¢ to $72.94/bbl. On the US spot market, WTI at Cushing, Okla., was down 4¢ to $72.47/bbl, still tracking the front-month futures contract. Heating oil for October delivery gained 1.51¢ to $1.84/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month dipped 0.29¢ but closed essentially unchanged at an average $1.85/gal.

The October natural gas contract hit a 6-week high of $3.90/MMbtu in intraday trade before closing at $3.46/MMbtu, down 30.2¢ for the day on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 21¢ to $3.49/MMbtu.

In London, the November IPE contract for North Sea Brent crude lost 12¢ to $71.55/bbl. Gas oil for jumped by $24.25 to $586.75/tonne.

The average price for OPEC’s basket of 12 reference crudes was up $1.58 to $70.27/bbl on Sept. 17.

Contact Sam Fletcher at samf@ogjonline.com.

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