MARKET WATCH: Mixed market factors push up oil, gas prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 17 -- The August natural gas contract jumped 12% July 16 in the New York market following the fourth consecutive government report of smaller-than-expected injections of gas into US storage.

The front-month crude contract continued to advance, peaking for the week above $62/bbl due to a stronger equities market and a weaker US dollar.

The Energy Information Administration reported the injection of 90 bcf of natural gas into US storage in the week ended July 10. That brought the amount of working gas in storage to 2.886 tcf, up 589 bcf from a year ago and 454 bcf above the 5-year average.

In New Orleans, however, analysts at Pritchard Capital Partners LLC said, “Strength in natural gas came from a report showing that US daily LNG usage averaged 1.44 bcf in the second quarter, well short of the earlier estimates that called for 3-5 bcfd. After checks with the LNG market observers, it seems there is too much focus on LNG.”

Current annual global LNG capacity is 180 million tonnes or 8.3 tcf of gas equivalent. However, Pritchard Capital analysts reported, “We have heard LNG processors are only running at 70% capacity, or 5.8 tcf/year.” Even if the US were to import all global production, LNG would meet only 25% of US natural gas requirements. Unless total LNG capacity increases dramatically, the analysts said, “It is unlikely that LNG could ever meet US demand. The long-term implication for US exploration and production companies is bullish as it necessitates the further development and production of US shale plays.”

Crude prices rose July 16 following “a better-than-expected report on economic growth in China and a late day rally in equities,” said analysts in the Houston office of Raymond James & Associates Inc.

But Pritchard Capital Partners blamed an early sell-off of crude in that session on “disappointment that the Chinese gross domestic product figure at 7.9% was in-line with the 7.8% estimate and not as high as the plus 8% whisper number some had hoped for.” The crude market later reversed direction, they said, “due to US dollar weakness that most likely stemmed from calls for a second US stimulus package that might actually lead to some job creation.” They added, “As long as calls for a second stimulus package continue, continued dollar weakness can be expected.”

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, warned commodity markets “need to be on alert for a further rise in risk aversion levels” that could threaten the global growth outlook, global equity markets, and commodity prices.

Nonetheless, Sieminski said, “We are not yet convinced that this will prevent the US economy moving out of recession from October. As a result, we view the main growth risk during the second half of this year stems from a slowdown in Chinese GDP growth, which we expect will take some time to reveal itself.”

Raymond James analysts said, “Oil prices have recently trended with the equities market, as traders have looked to stock markets for signs of optimism about the direction of the economy. However, the impending bankruptcy of CIT Group Inc. and upcoming earnings season will be a major indicator of the economy's direction and, thus, should continue to influence oil prices.”

Energy prices
The August and September contracts for benchmark US light, sweet crudes gained 48¢ to respective closings of $62.02/bbl and $63.06/bbl July 16 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., also increased 48¢ to $62.02/bbl in lock-step with the front-month NYMEX contract. Heating oil for August delivery was up 1.73¢ to $1.60/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month inched up 0.54¢ to $1.71/gal.

The August natural gas contract escalated 38.5¢ to $3.67/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 7.5¢ to $3.23/MMbtu.

In London, the expiring August IPE contract for North Sea Brent crude lost 34¢ to $62.75/bbl. Gas oil for August increased $12.75 to $515.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes climbed 81¢ to $62.54/bbl on July 16.

Contact Sam Fletcher at [email protected].