MARKET WATCH: Energy prices fall; crude holds above $70/bbl

Energy prices continued to fall June 15 as the US dollar posted its strongest gain against the euro since late May, following comments by Russian Finance Minister Alexei Kudrin that the dollar will remain the reserve currency around the globe.

Jun 16th, 2009

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 16 -- Energy prices continued to fall June 15 as the US dollar posted its strongest gain against the euro since late May, following comments by Russian Finance Minister Alexei Kudrin that the dollar will remain the reserve currency around the globe.

“Kudrin’s comments come ahead of the first ever BRIC (Brazil, Russia, India, and China) summit that begins today, and the nations are expected to collectively tone down their criticism about the US dollar,” said analysts at Pritchard Capital Partners LLC, New Orleans. “However, their actions do not appear to support their language as total net purchases of US assets by foreigners were $11.2 billion in April vs. $55.4 billion in March and much lower than the expected $60 billion. Unless foreigners step up their purchases of US assets, US dollar weakness and commodity strength may resume once the current overbought commodity situation corrects itself.”

Meanwhile, Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Overnight the dollar index is moving lower as Russia now says the world needs new reserve currencies.” He said the earlier increase in the dollar index triggered profit taking and selling across the commodity boards. “Since the commodity sector has been a strong component of the support in equity indices, they in turn also moved south and the volatility index moved north slightly above 30%.”

In other news, Jakob said, “Iran continues to make the headlines with the street demonstrations. Iran is, however, bigger than Teheran, and the support [losing moderate presidential candidate Mir Hossein] Moussavi has received in Teheran should not be extrapolated to the whole country. We do not see an Iranian supply risk per se, but if things do not rapidly calm down, there will be an increasing risk for a diversion to be created. In that regard, the US Navy in the [Persian] Gulf has received instruction to be disciplined and prudent to possible provocations (e.g. a repeat of the speedboat incidents).”

In Houston, analysts at Raymond James & Associates Inc. noted an “interesting start to the week” as energy corporate stocks and crude “followed the broader market lower, while natural gas spiked nearly 9%.” They said crude was up 2% in early trading June 16 on expectations that the scheduled June 17 petroleum inventory report by the US Energy Information Administration will show a draw on crude inventories.

Natural gas prices climbed 8.6% to above $4/MMbtu June 15 on the New York market, “primarily a result of short covering, as bearish fundamentals continue to reinforce our expectations of massive shut-ins near the end of summer,” said Raymond James analysts. “Other contributing factors may have included an announcement that EnCana Corp., Canada's biggest natural gas producer, will cut 10% of its production (400 MMcfd), with the production cut split evenly between the US and Canada,” they said.

Pritchard Capital Partners said, “Should others follow suit, natural gas could rally to reflect where exploration and production stocks are trading and close the spread between the front [New York] contract and the forward 12-month contract.” Gas prices also were boosted by forecasts for hotter weather on the East Coast lifting air conditioning demand, they said.

Energy prices
The July contract for benchmark US sweet, light crudes traded at $69.58-72.35/bbl June 15 on the New York Mercantile Exchange before closing at $70.62/bbl, down $1.42 for the day. The August contract dropped $1.44 to $71.31/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.42 to $70.62/bbl. Heating oil for July delivery declined 2.19¢ to $1.82/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month gained 0.99¢ to $2.05/gal.

The July natural gas contract escalated 32.5¢ to $4.18/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 21.5¢ to $3.82/MMbtu.

In London, the July IPE contract for North Sea Brent crude dropped $1.48 to $69.44/bbl. Gas oil for July lost $11.50 to $570.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was down $1.21 to $69.24/bbl on June 15.

Contact Sam Fletcher at samf@ogjonline.com.

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