>QUARTER 3 2010 REPORT ON ENERGY (Crude oil & Natural Gas

Summary: The Q3 2010 signifies the beginning of the US summer and also the official beginning of the North Atlantic Hurricane season. The Atlantic hurricane season this year is expected to one of the most active seasons on record. As the US government plans to impose a ban on deep water drilling post the crisis involving BP plc in the Gulf of Mexico the IEA predicts that supplies in US may fall by 300,000 barrels a day if the ban extends to 2 years. While Q3 happens to coincide with the seasonal trend for fuels like gasoline and natural gas as a result the outlook for energy products looks bullish in the coming quarter in the hope that the economy will perform much better than it did in the first half of the year.

Crude Oil: Prices traded near an 18-month high at the beginning of the quarter on better-than-expected economic numbers from the US. The US ISM non-manufacturing index and pending home sales data showed a positive growth. However, the debt crisis in Greece kept the crude oil prices in a tight band during first part of Q2. Events like the volcanic eruption in Iceland and a complaint filed by SEC against Goldman Sach continued to inject volatility into the market. In the month of May, ongoing debt crisis in Euro zone resulted into sharp fall in the prices below $65 per barrel. A rise in supply of crude oil at Cushing, Oklahoma resulted into fall in price of near month contract than farther months. In May, Fitch, the rating agency, downgraded Spain’s credit rating. This resulted into fall in crude oil prices by nearly 14%, the steepest fall since December 2008. At the beginning of June month, prices remained under pressure. However, the fall in crude inventories as reported by the DOE at NYMEX delivery point in Cushing, Oklahoma limited the fall and prompted the price to post positive closing.

Natural Gas: At the beginning of Q2, inventories began to build up earlier–than-expected as the Northern hemisphere winter ended earlier. This led to a rising surplus in overall inventories compared to the five year average. While there was little seasonal demand from nuclear and coal fired plants which were going through their maintenance. Positve economic data from US, however, helped to prevent prices from declining further. The first half of the quarter saw prices declining to as low as $3.92 per MMBtu while a recovery in prices was seen in the second half of the quarter. Good start of summer season, which means higher demand for natural gas at power plants to generate electricity for space cooling needs.

To read the full report: ENERGY SECTOR