MARKET WATCH: Tropical storm lifts crude futures prices

Sam Fletcher
Senior Writer

HOUSTON, July 22 -- With Tropical Storm Dolly headed into the Gulf of Mexico, crude futures prices rose July 21 for the first time in five trading sessions on the New York market, recovering only a small portion of losses from last week's biggest price decline ever.

TS Dolly managed to keep benchmark US crude "afloat for the day, but the rest of the commodity spectrum was on continued pressure," said Olivier Jakob at Petromatrix, Zug, Switzerland. Dolly should miss most of the US gulf oil and gas production but could still disrupt refineries in Corpus Christi, Tex., Jakob said.

Other factors also influenced oil prices. "Negotiations with Iran over its nuclear program proved futile over the weekend during a session in Geneva. Retail gasoline prices have dropped a nickel from their record highs, but the national average remains at $4.05/gal," said analysts at Pritchard Capital Partners LLC, New Orleans.

Jakob said, "The UAE will shut about 150,000 b/d of crude production during October-November for maintenance, but in Nigeria first oil from the 250,000 b/d Agbami [field] is expected to be loaded by mid-August. Agbami is a very light crude oil and due to its higher light end product yield, this new field will have a more balancing impact than any similar increase from Saudi Arabia."

Dolly is expected to make landfall near the Texas-Mexico border July 23-24 as a Category 1 hurricane with sustained winds of 74-95 mph. The storm is expected to dump 10-20 in. of rain in some areas, and major flooding is anticipated.

Workers were evacuated from 4 of the 717 manned production platforms and from 1 of the 123 mobile rigs in the gulf's US sector, the US Minerals Management Service reported July 21. No oil or gas production has yet been shut in, however. Oil production from the gulf was estimated at 1.3 million b/d in January. Gas production in the same period was estimated at 7.7 MMcfd.

Jakob noted: "In all this storm-watching, we need to keep in mind that Democrat lawmakers are trying to force a Strategic Petroleum Reserve release just to combat prices; hence we would expect the administration to be very quick in announcing a SPR release whenever a storm disruption materializes on production. An SPR release would be of no help to a refinery disruption, but compared to previous years the US refinery industry is running at a low capacity utilization (due to poor margins because of poor internal demand), hence US refineries should globally also have more capacity to offset a hurricane impact."

The National Hurricane Center in Miami issued a hurricane warning for the Texas coast from Brownsville north to Port O'Connor. A tropical storm warning was issued from Port O'Connor to the San Luis Pass, a strait south of Galveston. Mexico announced a hurricane warning from Rio San Fernando north to the US border. A tropical storm warning and a hurricane watch are in effect from La Pesca to Rio San Fernando. Meanwhile, another strong tropical wave is developing off the African coast.

Energy prices
The August contract for benchmark US sweet, light crudes regained $2.16 to $131.04/bbl July 21 on the New York Mercantile Exchange. The September contract increased $2.35 to $131.82/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.16 to $131.04/bbl. Heating oil for August delivery climbed 5.64¢ to $3.75/gal on NYMEX. The August contract for reformulated blend stock for oxygenate blending (RBOB) gained 4.62¢ to $3.22/gal.

The August natural gas contract dropped 6¢ to $10.51/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., advanced 1¢ to $10.53/MMbtu.

In London, the September IPE contract for North Sea Brent was up $2.42 to $132.61/bbl. The July contract for gas oil inched up 75¢ to $1,212/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 benchmark crudes dropped 21¢ to $127.72/bbl on July 21.

Contact Sam Fletcher at samf@ogjonline.com.

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