MARKET WATCH: Flagging refinery capacity raises prices

Sam Fletcher
Senior Writer

HOUSTON, June 15 -- Front-month crude prices jumped above $67/bbl to a 9-month high June 14 on the New York market following a government report of reduced US government refining capacity.

The US Energy Information Administration earlier reported gasoline stocks were unchanged at 201.5 million bbl in the week ended June 8, instead of the 1.2-2 million bbl increase that many had expected. Refinery utilization dipped to 89.2% from 89.6% in the week ended June 8 vs. a consensus expectation for a 0.7% increase. Gasoline production increased slightly, nonetheless; but gasoline imports declined by 350,000 b/d (23%) in the same period.

Middle East violence, with Hamas fighters reported to have seized control of almost all of the Gaza Strip, contributed to the market's rally, analysts said.

Crude prices were down slightly because of profit taking in early trading June 15 but remained above $67/bbl. "Low refinery utilization and continuing tensions with Iran contributed to prices reaching their highest levels since September," said analysts in the Houston offices of Raymond James & Associates Inc.

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said the new Nigerian government has taken a major step in releasing on bail a captured militant leader. "Reading the numbers rather than the headlines shows that all Organization of Petroleum Exporting Countries members (apart from Nigeria due to strife) have slightly increased production in May vs. April, with the losses of Nigeria offsetting those gains. OPEC will not commit now to a supply increase as it needs to see first how new developments in Nigeria impact production. If it was not for Nigeria, OPEC would have shown a supply increase in May."

Energy prices
The July contract for benchmark US light, sweet crudes traded as high as $67.89/bbl before closing at $67.65/bbl, up $1.39 for the day on the New York Mercantile Exchange. The August contract climbed $1.21 to $68.14/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.39 to $67.66/bbl. The July contract for reformulated blend stock for oxygenate blending (RBOB) bumped up 6.94¢ to $2.22/gal. Heating oil for the same month gained 5.41¢ to $2.02/gal.

The July natural gas contract jumped 20¢ to $7.81/MMbtu after EIA reported the injection of 92 bcf of natural gas into US underground storage in the week ended June 8. That was below Wall Street consensus and compared with injections of 110 bcf the prior week and 77 bcf during the same period last year. US gas storage is now at 2.26 tcf, down 131 bcf from a year ago, but 365 bcf above the 5-year average. On the US spot market, gas at Henry Hub, La., fell 11¢ to $7.48/MMbtu.

Enerfax Daily reported, "Many analysts were startled by the [gas market] rally, as the nation is still on track to reach record levels of storage by the beginning of winter heating season on Nov. 1. Forecasts for hot weather in large, densely-populated cities aren't seen as lasting more than a few days at a time, keeping cooling demand sporadic. Weather across the Northeast and Midwest will be characterized by spurts of hot weather followed by normal temperatures."

In London, the July IPE contract for North Sea Brent crude increased by $1.02 to $70.96/bbl. The July gas oil contract gained $9 to $619/tonne.

The average price for OPEC's basket of 11 benchmark crudes continued to climb, up 18¢ to $66.74/bbl on June 14.

Contact Sam Fletcher at samf@ogjonline.com.

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