MARKET WATCH: Natural gas price jumps 6.5% as oil prices slip lower

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 16 -- Crude oil prices slipped lower July 15 in the New York market with the front-month crude contract dropping below $77/bbl amid signs of an unsteady economy, but natural gas jumped 6.5% to the highest closing in 2 weeks.

The price hike came after the Energy Information Administration reported the injection of 78 bcf of natural gas into US underground storage in the week ended July 9, only slightly below the Wall Street consensus for an 80 bcf increase. That brought the working gas in storage to 2.8 tcf. Stocks now are 33 bcf below the comparable period in 2009 and 274 bcf above the 5-year average (OGJ Online, July 15, 2010).

“While this number wasn't nearly that bullish on margin, the [gas] market was both oversold and over short, which resulted in a strong technical bounce,” said analysts in the Houston office of Raymond James & Associates Inc. “With oil prices down, gas prices up, and the market relatively flat, energy stocks performed in-line.”

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston., said, “Despite the hotter-than-normal summer, we expect oversupply concerns to come back to dog the market as inventories are well over the 5-year average and only 33 bcf below last year’s level.”

Oil prices declined after the Federal Reserve System reported US factory output “dropped the most in a year, falling by 0.4% in June,” Pritchard Capital Partners said. “China’s economy has also been exhibiting signs of deceleration as it grew by 10.3% in the second quarter vs. 11.9% growth in the first quarter of this year. Concerns about the moderating growth will continue to limit sharp appreciation while a positive earnings season will be supportive to prices, keeping them range bound.”

However, Raymond James analysts said, “This was partially offset by a government report showing lower-than-expected jobless claims.”

The US Department of Labor reported July 16 the Consumer Price Index sagged 0.1% in June, largely as a result of less expensive energy bills. Also a twice-monthly survey from the University of Michigan and Reuters showed a consumer sentiment index dropped to 66.5 in early July from 76 previously, which caused stock prices to tumble in early trading with the Dow Jones Industrial Average down more than 185 points.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “On flat price of crude oil, it is difficult to find a market more undecided than this…. The gasoline crack was about unchanged, but the heating oil continues to lose steam while in Europe the ICE gas oil front spread is weakening slightly. The August Brent contract expired in backwardation and the West Texas Intermediate front spread remains very shallow in front of the WTI August expiry [on July 27,] but early indications are that there was a further build of crude oil in Cushing, Okla., taking those levels back to a few centimeters off the previous record highs.”

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, “The International Energy Agency (IEA) this week issued its first detailed look at 2011 global oil supply and demand balances. The IEA estimates that demand will rise by 1.6% or 1.35 million b/d year-over-year to 87.84 million b/d, following a rise of 1.77 million b/d in 2010 and a collapse of 1.25 million b/d in 2009.”

Energy prices
The August contract for benchmark US light, sweet crudes declined 42¢ to $76.62/bbl on the New York Mercantile Exchange. The September contract decreased 44¢ to $77.01/bbl. On the US spot market, WTI at Cushing was down 42¢ to the same price as the front-month crude futures contract, $76.62/bbl. Heating oil for August delivery lost 1.78¢ to $2.02/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dipped 0.58¢ to $2.06/gal.

The August natural gas contract escalated 28¢ to $4.59/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 7¢ to $4.47/MMbtu.

In London, the August IPE contract for North Sea Brent crude dropped 58¢ to $76.19/bbl. Gas oil for August fell $14.25 to $637.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was down 67¢ to $73.26/bbl.

Contact Sam Fletcher at [email protected].