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MARKET WATCH: Crude oil prices continue to increase

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 10 -- The crude oil market expanded its recovery June 9 in the New York as the dollar weakened and China’s exports were reported to increase 48.5% in May from the same period in 2009.

“We believe that rising Chinese exports, despite measures taken by the Chinese government to stop its economy from overheating, signal that the global recovery is intact so far. However, the European debt crisis, which is currently (relatively) dormant, has the potential to derail growth in the euro region if the European Central Bank and European Union officials do not act proactively to stop the crisis from inflicting further damage,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston.

A larger-than-expected draw on US crude inventories helped lift prices. The Energy Information Administration said 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 (OGJ Online, June 9, 2010).

It also announced the injection of 99 bcf of natural gas into US underground storage in the week ended June. 4. That put the amount of working gas in storage above 2.5 tcf. That’s 28 bcf more than in the comparable period last year and 310 bcf above the 5-year average.

Meanwhile, energy corporate stocks drove a late-day plunge in the equity market as the Obama administration increased political pressure on BP PLC over the stubborn Macondo oil spill in the deep waters of the Gulf of Mexico, resulting in “the worst day for BP shares (on a percentage basis) since the crisis began on Apr. 20,” said analysts in the Houston office of Raymond James & Associates Inc.

“Fear can be a powerful thing,” observed Raymond James analysts. “The market cap as of yesterday ($91 billion) officially makes BP the smallest of the five supermajors; it was No. 2 just 2 months ago.” They said, “Objectively speaking, we don't see anything new to warrant this, but it is clear that market fears about BP's solvency and viability—as opposed to merely its dividend—are escalating sharply, as shown by the continued widening of spreads.”

Nonetheless, Raymond James reported, “Against a backdrop of unrelenting pressure from Washington and the realization that some quantities of oil will continue to leak into the gulf at least until August, we don't see much at all in the way of positive catalysts over the next 2 months.”

In other news, the United Nations Security Council voted June 9 to impose a fourth round of sanctions on Iran in the ongoing attempt to force the country to cut back its nuclear program. Compared with the previous “wrist slaps,” the new sanctions “are the toughest yet,” tightening restrictions on certain individuals associated with the nuclear program; banning heavy weapons sales to Iran; and allowing—under some conditions—searches of Iranian ships in other countries.

But no embargo on gasoline sales to Iran was included “since Russia and China yet again insisted on watering down the resolution,” said Raymond James analysts. Iran responded immediately by announcing its uranium enrichment program will continue.

In its latest oil market report, the International Energy Agency raised its estimate of global oil demand by 60,000 b/d to 86.4 million b/d in 2010 with North American demand acceleration leading the way, with an oil production consumption increase of 3.6% in April from the same period in 2009. Raymond James analysts reported, “The IEA has identified 100,000-300,000 b/d of Gulf of Mexico production that could be cut over the next 5 years as a result of the gulf spill and subsequent moratorium.”

Energy prices
The July contract for benchmark US sweet, light crudes escalated by $2.39 to $74.38/bbl June 9 on the New York Mercantile Exchange. The July contract gained $2.38 to $75.44/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.39 to $74.38/bbl. Heating oil for July delivery advanced 4.43¢ delivery to $2.01/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 5.06¢ to $2.04/gal.

The July natural gas contract dropped 13.1¢ to $4.68/MMbtu on NYMEX as hotter weather gave way to more normal temperatures that reduced cooling demand. On the US spot market, gas at Henry Hub, La., fell 9¢ to $4.76/MMbtu.

In London, the July IPE contract for North Sea Brent crude rose $1.97 to $74.27/bbl, no longer at a premium to West Texas Intermediate in New York. Gas oil for June escalated by $14.75 to $639.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 97¢ to $71.08/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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