MARKET WATCH: Front-month crude hits 5-week high in New York

Sam Fletcher
Senior Writer

HOUSTON, Sept. 6 -- The front-month crude contract rose to a 5-week high Sept. 5 in the New York market on speculation that US gasoline inventories had fallen due to reductions in refining capacity.

"Concerns over prolonged refinery outages have helped propel oil prices higher. Currently, Chevron's Pascagoula, Miss., refinery remains at half capacity and Valero's Port Arthur facility [in Texas] still has a 105,000 b/d unit off line," said analysts in the Houston office of Raymond James & Associates Inc.

However, Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said: "West Texas Intermediate is approaching the overbought area as well as getting close to the resistance area of the previous yearly highs. With no supply disruptions (neither in Nigeria or from hurricanes), WTI would need a new investment push to have a chance to go back to the previous upward trend line, and the best candidate for such a move would be an inflow of passive investment."

The probability for such an inflow has increased, "given that passive investment and systematic trading systems will be driven by the roll yield [the price difference that occurs each time a contract is rolled from one expiring futures contract to another], and we had yesterday a proper squeeze on the time spreads, resulting in a strong widening of the crude oil backwardation. In this context the strong advances of open interest [in] WTI and [North Sea] Brent is a positive signal," said Jakob.

Meanwhile, meteorologists are watching a disorganized low-pressure area off the southeast US coast near Bermuda for possible development into a tropical or subtropical system over the next several days.

US inventories
Due to the Labor Day holiday, the Energy Information Administration delayed its weekly report on US inventories until Sept. 6 when it revealed commercial stockpiles of benchmark US crude fell 3.9 million bbl to 329.7 million bbl in the week ended Aug. 31. Gasoline stocks dropped 1.5 million bbl to 191.1 million bbl in the same week, well below average for this time of year. Declines were seen in both finished gasoline and gasoline blending components. Distillate fuel inventories increased by 2.3 million bbl. to 132.2 million bbl. Propane and propylene inventories rose 900,000 bbl to 55.2 million bbl.

Imports of crude into the US increased by 415,000 b/d to 10.2 million b/d in that same period. The input of crude into US refineries rose even higher, up 432,000 b/d to 15.9 million b/d as refining capacity increased to 92.1% from 90.3% the prior week. Gasoline production rose to 9.2 million b/d, with distillate fuel production up to 4.3 million b/d.

Energy prices
The October contract for benchmark US light, sweet crudes escalated 65¢ to $75.73/bbl on the New York Mercantile Exchange. The November contract gained 41¢ to $74.67/bbl. On the US spot market, WTI was up 66¢ to $75.74/bbl. The October contract for reformulated blendstock for oxygenate blending (RBOB) inched up 0.55¢ to $2/gal on NYMEX. Heating oil for the same month rose 2.04¢ to $2.10/gal.

The October natural gas contract bumped up 17.6¢ to $5.81/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., shot up 36.5¢ to $5.75/MMbtu. "Yesterday, natural gas prices strengthened on the news that Chesapeake Energy decided to voluntarily shut in natural gas production. This news may spur other E&P companies to slow drilling activity, as we approach what is shaping up to look like another year of high summer-ending storage levels," said Raymond James analysts.

EIA reported the injection of 36 bcf of natural gas into US underground storage in the week ended Aug. 31. That was below the consensus of Wall Street analysts and compared with injections of 43 bcf the prior week and 71 bcf during the same period a year ago. Storage is now just over 3 tcf, up 39 bcf from year-ago levels and 284 bcf above the 5-year average.

In London, the October IPE contract for North Sea Brent crude gained 42¢ to $74.34/bbl. Gas oil for September increased $2.75 to $651/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes rose 41¢ to $71.39/bbl on Aug. 5.

Contact Sam Fletcher at samf@ogjonline.com.

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