MARKET WATCH: European crisis brings down energy prices

Energy prices fell May 5 with crude dropping below $80/bbl for the first time since March and natural gas again slipping below $4/MMbtu in the New York market as Europe’s economy continued to crumble.

Sam Fletcher
OGJ Senior Writer

HOUSTON, May 6 -- Energy prices fell May 5 with crude dropping below $80/bbl for the first time since March and natural gas again slipping below $4/MMbtu in the New York market as Europe’s economy continued to crumble.

“The euro continued its collapse on prevailing concerns the Greek budget crisis will spread to other European countries. The budget crisis in eurozone is causing anxieties that it may derail already fragile economic recovery in Europe,” said analysts at Pritchard Capital Partners LLC in New Orleans.

Meanwhile, the Department of Energy’s Energy Information Administration reported commercial US inventories of crude continued to increase, up 2.8 million bbl to 360.6 million bbl in the week ended Apr. 30. Gasoline stocks rose by 1.2 million bbl to 224.9 million bbl. Distillate fuel inventories were up 600,000 bbl to 152.4 million bbl (OGJ Online, May 5, 2010).

That put US crude inventories at “the highest level since June last year, as crude imports climbed 2.8% to 9.95 million b/d, the highest level since the week ended July 24,” said Pritchard Capital Partners. Crude inventories at key storage in Cushing, Okla., are at the “highest level ever reported,” they said. “We expect that the bulging inventory levels will keep crude under pressure till at least some sort of resolution to European budget crisis is found.”

On the other hand, analysts in the Houston office of Raymond James & Associates Inc. said, “Oil prices were actually supported yesterday by a DOE report that showed a 5.8 million bbl build in total petroleum inventories, slightly less than the build [earlier] reported by the American Petroleum Institute.”

EIA reported the injection of 83 bcf of natural gas into US underground storage during the same week. That put working gas in storage at 1.995 tcf, up 97 bcf from the same period a year ago and 315 bcf above the 5-year average.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The DOE is showing a total stock build [in crude and products] of about 10 million bbl for the third week in a row. In total over the last 4 weeks the US has built 33.1 million bbl or a stock-build rate of 1.1 million b/d. Stocks of crude and clean petroleum products have built by 5 million bbl during the week and are at a new multi-year high.”

Gasoline inventories are at an all-time high for the similar week, “given that there has been close to no seasonal stock draw so far in the spring,” Jakob said. With refinery runs at a higher level, he said, distillates stocks continue building and are “also at an all-time record high for the similar week.”

Crude oil imports are increasing in line with the higher refinery utilization, resulting in stock-builds of crude both along the US Gulf Coast and in Cushing. “With the current contango structure [that] transforms storage tanks in Cushing into a money printing machine, we would expect the stock-build to continue,” Jakob said.

“The DOE statistics are not positive and have not been for the last 3 weeks; the strength of the dollar index and global risk aversion is not positive either,” said Jakob. “The only…risk to consider as we approach the weekend is the weather risk linked to the [Macondo] oil spill. The spill is a risk similar to a hurricane. Its path is calculated by computer models, and a 2-day break (weekend) usually commands a risk premium. This particularly because the models are now showing the spill moving west rather than east and getting closer to the crucial Mississippi southwest pass. The Coast Guard has installed ‘washing stations’ for ships in the Mississippi River, but if the spill confirms a move westward some delays to shipping operations should not be excluded.”

Energy prices
The June and July contracts for benchmark US sweet, light crudes lost $2.77 each with respective closings of $79.97/bbl and $82.99/bbl May 5 on the New York Mercantile Exchange. On the US spot market, WTI at Cushing continued tracking the front-month futures contract, down $2.77 to $79.97/bbl. Heating oil for June delivery declined 7.5¢ to $2.18/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dropped 10.18¢ to $2.22/gal.

The June natural gas contract slipped 2.2¢ to $3.99/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., inched up 2¢ to $4/MMbtu.

In London, the June IPE contract for North Sea Brent crude dropped $3.06 to $82.61/bbl. Gas oil for May fell $25.25 to $699/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was down $3.04 to $81.12/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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