MARKET WATCH: Energy prices, equities fall in nervous markets

Energy prices continued to tumble June 1 in nervous markets with crude declining 1.9% and natural gas dropping 3% in New York, pulled down by a sell-off in equities as traders assessed more potential barriers to an economic recovery.

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 2 -- Energy prices continued to tumble June 1 in nervous markets with crude declining 1.9% and natural gas dropping 3% in New York, pulled down by a sell-off in equities as traders assessed more potential barriers to an economic recovery.

Although energy companies were the worst performing, the broader equity market “took it on the chin” after BP PLC’s “top kill” attempt over the weekend failed to stem the Macondo blowout in the deep Gulf of Mexico, said analysts in the Houston office of Raymond James & Associates Inc.

Investors focused on growth in US construction and manufacturing “until the launch of the Justice Department's criminal investigation into the BP disaster, combined with reports out of the Middle East indicating Lebanon fired on Israeli warplanes” triggered “an outright market sell-off,” Raymond James analysts reported. The Standard & Poor’s 500 Index dropped 1.7% while the Dow Jones Industrial Average lost 1.1% in the first day of trading after the long Memorial Day weekend.

Raymond James analysts marveled at benchmark oil futures in the $72/bbl range “despite the recent pickup in geopolitical tension (in the Middle East and North Korea).” They warned: “This is something to keep a close eye on.”

US Atty. Gen. Eric Holder said June 1 the US Department of Justice is opening a criminal investigation of all companies involved in the Macondo blowout (OGJ Online, June 2, 2010). “Alongside the weekend's failure of ‘top kill,’ this contributed to a 15% meltdown in BP shares as the market is now considering the possibility of criminal liability and not just civil lawsuits,” Raymond James analysts said.

In other news, Japanese Prime Minister Yukio Hatoyama said June 2 he will resign just 8 months after taking office. He was under growing pressure to quit after failing to make good on earlier campaign pledges.

International economists at Chatham House, home of the Royal Institute of International Affairs in London, said, “The rapid turnover of Japanese premiers recently—four in as many years—suggests that the country may rapidly be becoming ungovernable. At a time of great international political and economic nervousness, the cost for Japan, for the East Asian region, and the world more generally of this leadership uncertainty is likely to be very high.”

Energy prices
The July contract for benchmark US light, sweet crudes fell $1.39 to $72.58/bbl June 1 on the New York Mercantile Exchange. The August contract lost $1.26 to $73.90/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., closed at $72.58/bbl, in step with the front-month futures contract price. Heating oil for July delivery was down 3.41¢ to $1.97/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 4.41¢ to $1.98/gal.

The July contract for natural gas fell 9.3¢ to $4.25/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., closed at $4.39/MMbtu.

In London, the July IPE contract for North Sea Brent was down $1.94 to $72.71/bbl, still reducing its current premium over WTI. Gas oil for June gained $2 to $639.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 90¢ to $70.98/bbl. The OPEC Secretariat will be closed June 3.

Contact Sam Fletcher at samf@ogjonline.com.

More in Economics & Markets