MARKET WATCH: Crude fails to hold above $70/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 8 -- The front-month crude contract temporarily topped $70/bbl June 5 on the New York market for the first time in 6 months, then fell back to the $68/bbl level as the US dollar strengthened and concern continued over future demand.

“Oil initially rose and broke the $70/bbl level and traded as high as $70.32/bbl on better economic data that showed nonfarm payrolls fell by 345,000 vs. an expected drop of 520,000,” said analysts at Pritchard Capital Partners LLC, New Orleans. “However, the rise in oil was tempered by earlier comments from the executive director of the International Energy Agency, Nobuo Tanaka, that the recent strength in the price of oil is not supported by the current fundamentals. Renewed strength in the US dollar also led to weakness across all commodities. The dollar strengthened because it appears the US economy is stabilizing ahead of other areas around the globe. Should dollar strength persist, it is possible the current rally in crude and commodities could pause.”

Despite June 5 losses, the front-month contract for US crude finished the week higher by $2.07/bbl. North Sea Brent was up $2.82/bbl for the week. Heating oil gained $4.25/bbl, while reformulated blend stock for oxygenate blending (RBOB) was up $2.43/bbl. Natural gas was almost unchanged but up 1.33%, said Olivier Jakob at Petromatrix, Zug, Switzerland.

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said, “One of the justifications for oil prices within spitting distance of $70/bbl is that recovery is on the way and commodities investors are getting in on the ground floor. But good economic news is pretty thin on the ground, and you have to be an incurable optimist to believe that demand is going to recover any time soon in the Organization for Economic Cooperation and Development economies.”

They cited “the sobering forecast” by the IEA that global electricity demand will fall this year for the first time since 1945, down by 3.5%. “Even in past recessions electricity demand has never fallen,” they said.

KBC analysts added, “Nothing has happened in the fundamental world to change our view that oil demand is very weak and that oil stocks are very high.”

Energy prices
The July contract for benchmark US light, sweet crudes lost 37¢ to $68.44/bbl June 5 on the New York Mercantile Exchange. The August contract declined 34¢ to $69.35/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., was down 37¢ to $68.44/bbl. Heating oil for June delivery fell 1.39¢ to $1.77/gal on NYMEX. RBOB for the same month slipped 0.75¢ to $1.95/gal.

The July contract for natural gas gained 5.8¢ to $3.87/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gas fell 25.5¢ to $3.77/MMbtu. Pritchard Capital Partners said, “Natural gas has not followed the pattern of other commodities so divergence with commodities as a group is not surprising.” They said, “Rig count reductions, well production declines, shut-ins, and an improving economy will ultimately cut into supply.”

In London, the July IPE contract for North Sea Brent declined 37¢ to $68.34/bbl. Gas oil for June lost $5 to $549.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased by $1.07 to $68.08/bbl on June 5. So far this year, the OPEC basket has averaged $48.12/bbl.

Contact Sam Fletcher at [email protected].