MARKET WATCH: Crude falls below $60/bbl in New York

Crude dropped below $60/ bbl and triggered technical selling July 10, culminating the biggest weekly loss in 6 months on the New York market, amid economic concerns and proposed hearings this summer to curb suspected manipulation of the futures market by speculators.

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 13 -- Crude dropped below $60/ bbl and triggered technical selling July 10, culminating the biggest weekly loss in 6 months on the New York market, amid economic concerns and proposed hearings this summer to curb suspected manipulation of the futures market by speculators.

The price of crude fell in seven of eight consecutive trading sessions through July 10, down $11.60 overall from a closing price of $71.49/bbl June 29. But fears of a faltering economy couldn’t have taken the price below $65/bbl against a background of tightening crude supplies, determination of members of the Organization of Petroleum Exporting Countries to raise prices to a sustained $75/bbl, and “broadening fears” that inadequate investments in exploration and development threaten market stability in coming months and years, said Paul Horsnell, a managing director and head of commodities research at Barclays Capital in London.

What carried the price of crude below $60/bbl in New York, Horsnell said, was Commodities Futures Trading Commission Chairman Gary Gensler’s announcement that his group will consider imposing position limits on energy commodities to root out suspected speculators. CFTC expects to schedule hearings on that issue later this summer.

In New Orleans, analysts at Pritchard Capital Partners LLC said, “After more than a 100% rally from [previous oil price] lows, a correction was expected. It appears that real buyers of physical crude enter the market closer to $60/bbl, which should lead to some price stabilization around that number and provide both a technical trading and real demand based floor around that price.”

In Houston, however, analysts in the Houston office of Raymond James & Associates Inc. said crude prices climbed slightly in early trading July 13 on reports of sabotage of an oil tanker loading dock in Nigeria. Attacks by militants in the Niger delta “have forced surrounding oil producers to shut down nearly 300,000 b/d of production over the last 7 weeks,” said Raymond James analysts.

Still, they expect crude prices to continue “correcting downward” since weak demand has resulted in above-average inventories.

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said, “It looks increasingly the case that a main prop to oil’s recent rally was fund buying as a hedge against inflation. Market fundamentals are weak, and if anything getting worse rather than better. Given the high level of stocks, it now looks likely that $70/bbl will provide a temporary cap for oil prices. If funds start to bail out of commodities markets we could easily revisit $50/bbl.”

Energy prices
The August contract for benchmark US light, sweet crudes dropped 52¢ to $59.89/bbl July 10 on the New York Mercantile Exchange. The September contract fell 61¢ to $60.88/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 52¢ to $59.89/bbl. Heating oil slipped 0.09¢, but its closing price was essentially unchanged at an average $1.53/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month lost 1.33¢ to $1.65/gal.

The August natural gas contract dropped 3.5¢ to $3.37/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 10¢ to $3.23/MMbtu.

In London, the August IPE contract for North Sea Brent crude lost 58¢ to $60.52/bbl. The July gas oil contract was unchanged at $483.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes declined 72¢ to $59.86/bbl on July 10. So far this year, OPEC’s basket price has averaged $51.65/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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