MARKET WATCH: Crude inches higher under tropical storm threat

Crude oil prices inched up June 24, ending a 2-day retreat on the New York market, as the possible threat of a tropical storm in the Gulf of Mexico topped market concerns about setbacks to economic recovery.

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 25 -- Crude oil prices inched up June 24, ending a 2-day retreat on the New York market, as the possible threat of a tropical storm in the Gulf of Mexico topped market concerns about setbacks to economic recovery.

The front-month natural gas contract declined 1.1% “despite warmer-than-normal weather that continues to shrink the size of storage injections,” said analysts in the Houston office of Raymond James & Associates Inc. The Energy Information Administration reported the injection of 81 bcf of natural gas into US underground storage in the week ended June 18, raising the amount of working gas in storage above 2.6 tcf. Gas stocks are 14 bcf below the year-ago level but 309 bcf above the 5-year average (OGJ Online, June 24, 2010).

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “Crude got a boost from the euro’s rise as well, which gained 0.6% against the dollar.” Expectations of the strength of economic recovery have moderated somewhat, although prices would look for direction from gross domestic product and personal consumption data to be released June 25, he said.

Olivier Jakob at Petromatrix, Zug, Switzerland, noted “some additional risk” this weekend with the Group of 20 (G20) finance ministers and central bank governors meeting June 26-27 in Toronto. “That will bring some headlines but apart from spinning good stories, we do not really see what else can be done by governments that have already used all of their fiscal policy ammunitions and that have a cohesion that can be only be compared to the French soccer team,” Jakob said. French team members competing for the World Cup refused to practice June 26 after a teammate was sent home for insulting a coach during a game.

Moreover, Jakob noted the second quarter ends June 30. “End of quarters can from time to time bring some price support for valuation purposes, but we will approach this coming end of the quarter with a neutral approach because the underperformance of commodity indices and the reported poor performance of a few hedge funds could also translate into some exposure outflows for the start of the next quarter,” he said.

In other news, BP PLC said its out-of-pocket costs related to the Macondo blowout in the Gulf of Mexico total $2.35 billion, up $350 million in just the past 5 days. “The current $70 million/day run-rate sets a record and is roughly double the average of $36 million/day during the 65 days since the original rig explosion on Apr. 20,” said Raymond James analysts. “Cumulative costs have more than doubled since the end of May. Meanwhile, the Financial Times reported that the other supermajors are increasingly hesitant about partnering with BP on upstream projects—not a huge surprise under the circumstances, but not helpful for BP shares nonetheless,” they said.

If a tropical storm does form in the gulf and crosses the oil spill, Raymond James analysts said, “Operations would almost certainly have to be suspended—both cleanup and the drilling of the two relief wells. Whether a storm would push oil towards or away from the coastline depends entirely on its trajectory.”

Energy prices
The August contract for benchmark US light, sweet crudes increased 16¢ to $76.51/bbl June 24 on the New York Mercantile Exchange. The September contract inched up 12¢ to $77.15/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 68¢ to $76.16/bbl as it tried to get back in step with the NYMEX front-month contract price. Heating oil for July delivery dropped 1.12¢ to $2.06/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month was exactly opposite, up 1.12¢ to $2.31/gal.

The July natural gas contract fell 5.6¢ to $4.75/MMbtu on NYMEX. “Prices are likely to soften a bit more as temperatures in the Midwest and Northeast are expected to go below normal next week,” said Pritchard Capital Partners. On the US spot market, gas at Henry Hub, La., was up 0.5¢ to $4.89/MMbtu.

In London, the August IPE contract for North Sea Brent crude increased 20¢ to $76.47/bbl. Gas oil for July dropped $2 to $656.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes fell $2.15 to $72.93/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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