MARKET WATCH: Storm lifts crude oil, natural gas prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 28 -- Energy prices continued climbing June 25 in the New York market, with a tropical depression in the Caribbean strengthening to Tropical Storm Alex, the first named storm of this hurricane season, over the weekend.

A hurricane watch was issued June 28 for the southwestern Gulf of Mexico from Baffin Bay, Tex., to La Cruz, Mexico, including Brownsville, Tex., and the mouth of the Rio Grande. The storm is expected to strengthen to hurricane force and make landfall in northern Mexico or along the extreme southern Texas Coast later this week.

On its present course, it should pose no threats to efforts to control or clean up the Macondo blowout in deep gulf waters off Louisiana. On June 27, however, the ports of Dos Bocas and Cayo Arcas, through which move 80% of Mexico’s export shipping in the Gulf of Mexico, were closed because of weather conditions.

Over the weekend, Shell Oil Co. shut in subsea production at the Auger and Brutus platforms and evacuated nonessential workers from platforms and rigs on the US side of the gulf. BP PLC also removed some personnel from the Atlantis, Mad Dog, and Holstein platforms. All of these platforms are far offshore in deep water and on the northern edge of Alex’s projected course.

“For the week ahead, watch for oil and gas to take their cues from the developing [weather] situation in the gulf while the markets react to several key macro data points including the June consumer confidence report and unemployment rate,” said analysts in the Houston office of Raymond James & Associates Inc.

BP shares are “set to bounce today,” said Raymond James analysts. “With rapid escalation of out-of-pocket costs (currently running at $100 million/day) providing the backdrop, BP shares hit a 14-year low at the end of last week.” Barring unforeseen technical problems, the expanded containment system is set to be implemented in the second half of the week, doubling the oil capture rate from 25,000 b/d to 50,000 b/d, they said.

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, reported, “The weakening dollar also provided some support to prices as the euro gained 0.4% against the dollar on June 25. A 2.7% second-quarter GDP growth was lower than the 3% growth economists were expecting, although, bullish consumer confidence figures kept the spirits lifted in the market. Index of consumer confidence increased to 76, the highest level since January 2008, from 73.6 in May while economists were expecting it to rise to 75.5. While elevated crude inventories, which stand at the highest level for the period since 1990, will limit sharp appreciation in prices, spending growth due to improving consumer sentiment in the medium term will continue to provide support to crude.”

The July natural gas contract rose 2.4% on June 25 on concerns of possible storm disruption of production in the gulf. “However, we believe that the impact of Tropical Storm Alex would be minimal and expect it to instead drop temperatures and hence cooling demand in part of the Texas Gulf Coast,” said Pritchard Capital Partners.

In other news, stock futures prices were up June 28 after global leaders vowed to continue policies supportive of economic growth at the Group of 20 (G20) meeting June 26-27 in Toronto. On June 25, “the broader market finished relatively unchanged as a weaker-than-expected final first quarter gross domestic product report was offset by gains in financials after lawmakers settled for a ‘watered-down’ reform bill,” Raymond James reported.

Energy prices
The August contract for benchmark US light, sweet crudes climbed $2.35 to $78.86/bbl June 25 on the New York Mercantile Exchange. The September contract rose $2.28 to $79.43/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.70 to get back in lock-step with the front-month crude futures price of $78.86/bbl.

Heating oil for July delivery increased 5.5¢ to $2.11/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month gained 7.43¢ to $2.17/gal.

The July natural gas contract escalated 11.3¢ to $4.86/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 5¢ to $4.84/MMbtu.

In London, the August IPE contract for North Sea Brent crude was up $1.65 to $78.12/bbl. Gas oil for July gained $8.75 to $665.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 89¢ to $73.82/bbl. So far this year, OPEC’s basket price has averaged $76.08/bbl.

Contact Sam Fletcher at samf@ogjonline.com.