MARKET WATCH: Crude holds above $68/bbl, may rise

Energy prices continued to fall June 8, with the July benchmark crude contract down to $66.78/bbl in intraday trading before climbing back to finish at $68.09/bbl, down 35¢ for the day on the New York Mercantile Exchange.

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 9 -- Energy prices continued to fall June 8, with the July benchmark crude contract down to $66.78/bbl in intraday trading before climbing back to finish at $68.09/bbl, down 35¢ for the day on the New York Mercantile Exchange.

Crude recovered most of its early losses on warnings from both the International Energy Agency in Paris and the chief executive of Royal Dutch Shell PLC that oil prices will spike again if the current level of exploration and production spending does not increase.

Analysts at Pritchard Capital Partners LLC, New Orleans, said, “The Canadian Association of Petroleum Producers also expects oil sands production by 2015 of 1.9-2.2 million b/d if projects that are now in operation or under construction go ahead; this is down from a 2007 estimate of 3 million b/d and the third cut since 2007. The most recent strength in the oil price is attributed to a weak dollar, but now line of thought is changing to a possible shortfall in supply 6 months to 1 year from now.”

Pritchard Capital Partners reported natural gas futures prices fell despite a weekend report from the North American Terminal Services showing an average 1.86 bcfed of LNG arrived at US terminals in April, less than the 3-5 bcfed some were expecting. “May through July is the period when the US LNG imports are supposed to peak,” they noted.

They said, “The price differential between oil and natural gas has not been as great since 1992. Historically, oil has traded 7 times the value of natural gas; the current ratio is 18.5 times.” Pritchard Capital analysts said, “Natural gas may not experience the V-shaped recovery that crude has had.” But the forward curve in the natural gas futures market, latest data from the Energy Information Administration showing a response of diminishing supplies, reduced LNG imports, and the performance of E&P stocks year-to-date “all imply that natural gas has bottomed,” they said.

Analysts in the Houston office of Raymond James & Associates Inc. said crude was again pushing $70/bbl in early trading June 9 “on signs of a global economic recovery.” They noted the latest data showing a 34% increase in car sales in China during May over year-ago levels. “Through the first 5 months of the year, China's auto sales are up 14% to 4.96 million vehicles compared [with] US auto sales, which are down 37% to 3.95 million vehicles,” they said. “China is quickly rebounding from the global recession, and consequently Chinese oil demand, one of the biggest question marks in our oil model, has no place to go but up and to the right.”

Olivier Jakob at Petromatrix, Zug, Switzerland, noted the “extreme stability” of benchmark US crude prices so far in June, with the price holding above $68/bbl in all but one NYMEX session. However, he said, “Such extreme stability never stays for an extended period of time and is usually concluded by a volatility breakout from the range. That would be either below $66/bbl or above $70/bbl.”

Inventory reports this week could trigger a breakout. “Given the latest market dynamics, we will have a bias towards the upside breakout,” Jakob said.

Energy prices
The August contract for benchmark US sweet, light crudes lost 32¢ to $69.03/bbl June 8 on NYMEX. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 35¢ to $68.09/bbl. Heating oil for July slipped by 0.22¢, but the closing price was virtually unchanged at $1.77/gal on NYMEX. The July contract for reformulated blend stock for oxygenate blending (RBOB) dropped 1.86¢ to $1.94/gal.

Natural gas for the same month fell 13.7¢ to $3.73/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 1¢ to $3.53/MMbtu.

In London, the July IPE contract for North Sea Brent crude dropped 46¢ to $67.88/bbl. The June gas oil contract lost $3.50 to $545.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes fell $1.06 to $67.02/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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