IPE Brent crude drifts lower after early rally

London (Platts)--16Jun2006

IPE Brent crude futures in London drifted lower Friday after an initial
push back towards $70/barrel as a bout of selling from Asian customers took
hold and overrode buying interest from hedge funds.
Oil prices initially rose on the back of strong natural gas futures in
the US, with the front-month August contract trading as high as $69.34/barrel,
but had dropped to $68.23/barrel by 1130 GMT, down 26 cents on the day.
Natural gas futures in the US have risen sharply over the past two
trading sessions as warmer than usual weather has begun to take hold and push
demand higher. Natural gas is a major feedstock for power utilities which
provide the power for air conditioning units.
July NYMEX natural gas futures jumped above the $7/MMBtu level for the
first time since May 6, which brokers said was a bullish impetus to the oil
market. "Markets outside of crude oil are having a bullish impact and driving
prices higher," one broker at Man Financial said. The US Energy Information
Administration Thursday reported a smaller-than-expected 77 Bcf natural gas
stock injection for the week ended June 9.
"The build in the producing region was wildly lower than our
expectations, while eastern builds were slightly higher. The level of demand
implied by the producing region injection has not really borne itself out in
the cash market, suggesting that baseload gas supplies have basically been
redirected from storage facilities to meet petrochemical, refinery
or power generation demand," JP Morgan said in a research note to clients.
Brokers said that current geopolitical events, while still evident, were
taking a back seat and having only a limited impact on pushing oil prices
higher.
--Paul Wightman, paul_wightman@platts.com

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