MARKET WATCH: Crude oil price makes small recovery

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 9 -- The price of crude for July delivery increased June 8 for the first time in 3 days in the New York market after Federal Reserve Chairman Ben Bernanke reassured nervous investors the economic recovery is on track.

But after shooting up 16% in 4 days of consecutive gains, the front-month natural gas futures contract dropped 2.2% on forecasts of cooler weather in the US Northeast and Midwest.

“The euro’s advance against the dollar for the first time in 4 days, also boosted [crude] prices,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “As the recovery remains on track, demand for the fuel in the US will increase, providing further price support.”

He said, “The forecasts for moderating temperatures over the next few days also weighed on [gas] prices. The projections for hyperactive hurricane season and higher industrial demand have brought the bulls back to the market, although, we believe that a bigger pull back in onshore drilling activity is required to support any sustained appreciation in prices.”

Olivier Jakob at Petromatrix, Zug, Switzerland, reported, “On the geopolitical side, the [United Nations] will vote today the new sanctions against Iran. It will very probably not be a unanimous vote but a majority one; expectations are, however, strong that it will pass without a Chinese veto.”

Jakob said, “The sanctions are relatively mild and still far away from an embargo of gasoline to Iran. Iran is anyway planning to remove fuel subsidies at the end of September and as time passes on, it will be better prepared for the day the western powers try to force a tougher sanction regime (i.e. on gasoline to Iran).

OPEC outlook
In its latest monthly report, the Organization of Petroleum Exporting Countries said the average price of its reference basket of members’ crudes fell below $67/bbl on May 25—the lowest level since early October—underscoring market volatility as uncertainties about oil demand reemerged amid disappointing macroeconomic data and concerns about the impact of Europe’s debt crisis. The OPEC reference basket averaged $74.48/bbl in May, down 9.5% from April while the front-month crude contract in New York dropped 12% as the market turned bearish. “Speculative activity on the crude futures market also declined as money managers cut net long positions by almost 60% in May,” said OPEC officials.

The average price for OPEC’s basket of 12 reference crudes gained 27¢ to $70.11/bbl on June 8.

OPEC revised its outlook for 2010 world economic growth up to 3.8% from 3.5% last month, primarily because of Japan’s better-than-expected performance in the first quarter with strong exports to Asia. Japan is now forecast to grow 2.7% in 2010, compared to a previous 1.5%.

Growth for the euro-zone increased slightly to 0.7% from 0.6%, while the US remained unchanged. China growth was left unchanged at 9.5%, while India was increased to 7.3% and Russia to 4%. “While the global economy seems to be enjoying solid momentum in the first half, concerns about growth in the second half remain due to euro-zone sovereign debt problem, the ability of China to avoid overheating, and the still high unemployment in Organization for Economic Cooperation and Development countries,” said members of the cartel.

OPEC officials reported recent data indicate demand growth has been slightly higher than estimated in the first half of the year. However, they said, “An expected moderation in the pace of the economic recovery is likely to impact demand growth forecasts for the second half. Total demand growth is still expected to come from non-OECD as growth in the OECD is expected to remain negative.”

Officials said a combination of growing product demand along with lower crude cost in May lifted refining margins across the globe and encouraged refiners, particularly in the US, to increase throughputs. With the start of the driving season and predictions for a more active hurricane season, gasoline market sentiment may strengthen further, they said. However, due to comfortable stocks and persisting spare refinery capacity across the globe, product markets are not expected to lead the market and support crude over the coming months.

OPEC said demand for its crude is expected to have averaged 28.94 million b/d in 2009, down 2.4 million b/d from 2008. Demand in 2010 is expected to average 28.77 million b/d, down 70,000 b/d from the previous assessment and down 175,000 b/d from the previous year. “This would leave no room for additional crude oil supplies in the market,” officials said.

US inventories
The Energy Information Administration said June 9 commercial US crude inventories fell 1.8 million bbl to 361.4 million bbl in the week ended June 4. Gasoline stocks were unchanged at 219 million bbl. Distillate fuel inventories increased by 1.8 million bbl to 154.8 million bbl.

Total commercial petroleum inventories decreased by 500,000 bbl in the latest week. Total products supplied over the last 4-weeks averaged 19.7 million b/d, a 7.3% increase from the comparable period last year. In the latest 4 weeks, gasoline demand averaged 9.1 million b/d, down 1% from a year ago, while distillate demand was up 12.1% to 4 million b/d, EIA said.

The American Petroleum Institute earlier reported US crude stocks dropped 4.5 million bbl to 358.2 million bbl in the week ended June 4. It said gasoline inventories increased 1.2 million bbl to 219 million bbl in the same period while distillate stocks jumped 3 million bbl to 151.5 million bbl.

Crude imports into the US increased by 80,000 b/d to 9.5 million b/d last week, EIA reported. In the 4 weeks through June 4, imports averaged 9.7 million b/d, up 641,000 b/d from the same period last year.

The input of crude into US refineries rose 82,000 b/d to 15.2 million b/d in that week, with units operating at 89.1% of capacity. Gasoline production dropped to 9.1 million b/d, and distillate production increased to 4.4 million b/d.

Energy prices
The July contract for benchmark US light, sweet crudes regained 55¢ to $71.99/bbl June 8 on the New York Mercantile Exchange. The August contract took back 29¢ to $73.06/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 55¢ to $71.99/bbl. Heating oil for July delivery slipped 0.3¢ but finished virtually unchanged at a rounded $1.97/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 0.58¢ but was essentially unchanged at $1.99/gal.

The July natural gas contract dropped 10.8¢ to $4.81/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., bumped up 10.5¢ to $4.85/MMbtu.

In London, the July IPE contract for North Sea Brent crude increased 18¢ to $72.30/bbl. Gas oil for June gained $4 to $625/tonne.

Contact Sam Fletcher at samf@ogjonline.com.

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