MARKET WATCH: Energy prices continue to climb

Energy prices continued to climb July 17 amid signs of economic recovery, including a government report that new US housing starts and permits jumped more than expected in June.

Jul 20th, 2009

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 20 -- Energy prices continued to climb July 17 amid signs of economic recovery, including a government report that new US housing starts and permits jumped more than expected in June.

For the third consecutive month, the New York-based Conference Board's index of leading economic indicators increased, up 0.7% in June, outstripping the consensus for a gain of 0.4%. The group reported economic indicators through the first 6 months of 2009 were up 2% for a 4.1% annual growth rate, the strongest since the first quarter of 2006.

In New Orleans, analysts at Pritchard Capital Partners LLC reported additional evidence of economic recovery. “China continues to build its oil reserves as the Chinese National Offshore Oil Co. bought Block-32 located off Angola from Marathon Oil Corp. for $1.3 billion,” they said. “The list of reserves and money lent to energy companies by the Chinese oil interests is growing, and this transaction in addition to the others is confirmation there is an underlying bid for all energy assets not based in the US.”

In Houston, analysts at Raymond James & Associates Inc. said, “A declining dollar along with rising equity markets drove oil prices up over 6% last week.” Oil prices were up in early trading July 20 “due to signs that China's energy demand is strengthening as Chinese refiners raised their operating rates for the 8th consecutive week.”

However, at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said, “Hardly any sensible observer still believes in a V-shaped recovery with even talk of a U-shaped recovery becoming problematical. During the past few days there has been some disturbing talk about the W-shaped recovery. In essence, this suggests that any modest recovery will quickly go into reverse as another wave of financial crises hits the economy.”

With no major change in supply and demand fundamentals, oil prices over next 6 months “will depend on the performance of the global economy,” said analysts at the Centre for Global Energy Studies (CGES), London. “Oil demand should increase seasonally over the next two quarters, but fears of a ‘double dip’ recession may serve to prevent oil prices from rising much in the second half of 2009,” they said.

Energy prices
The August contract for benchmark US light, sweet crudes escalated by $1.54 to $63.56/bbl July 17 on the New York Mercantile Exchange. The September contract climbed $1.52 to $64.58/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.54 to $63.54/bbl. Heating oil for August gained 4.16¢ to $1.64/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month increased 5.64¢ to $1.77/gal.

Natural gas attempted to rally July 17 but closed flat after the 12% gain in the previous session. The August contract inched up 0.1¢, but its closing price was virtually unchanged at an average $3.67/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., jumped 19¢ to $3.42/MMbtu.

“The improving storage situation has been one of the recent catalysts,” said Pritchard Capital Partners. “At 2.886 tcf storage is 18.7% higher than the 5-year average, down from 19.3% the previous week, and the fourth consecutive narrowing.” The number of US rigs drilling for gas is down to 665, a 7-year low.

Raymond James analysts reported, “Natural gas is now the year's worst performing major commodity. Industrial demand for gas, which accounts for 29% of US consumption, was down 13% year-over-year in the first quarter.”

In London, the September IPE contract for North Sea Brent crude gained $1.63 to $65.38/bbl. Gas oil for August increased $11 to $526.50/bbl.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 69¢ to $63.23/bbl on July 17. So far this year, OPEC’s basket price has averaged $52.01/bbl.

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