MARKET WATCH: Crude oil price rebounds, breaking losing streak

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 8 -- Increased US retail sales indicating continued economic expansion pushed the near-month crude contract above $74/bbl July 7 on the New York market, breaking a 7-session losing streak.

“The broader market rallied as a report from the International Council of Shopping Centers showed that US retail sales increased 1% for the week ending July 3, while sales expanded at an average monthly rate of 4% for the 5 months ending in June, the biggest gain since 2006,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston.

However, analysts in the Houston office of Raymond James & Associates Inc. reported, “Gas prices stalled out, falling 2.2% on the day, but appear to be bouncing back modestly this morning.”

Meanwhile, the US Department of Energy said a moratorium on deepwater drilling in the Gulf of Mexico, if reinstated, would reduce US crude production by 31,000 b/d in the fourth quarter, up 5,000 b/d from last month’s estimate. It also estimated the production loss in 2011 at 82,000 b/d, up from a June prediction of 70,000 b/d. The government estimated benchmark US crude will average $79/bbl through the second half of this year, increasing to $83/bbl in 2011.

DOE expects gas prices to increase as a result of this year’s hurricane season, averaging $4.70/MMbtu for 2010.

The Obama administration’s moratorium on deepwater drilling in the gulf was knocked down by a federal judge who said it was too broad. The US Department of Justice then took it to the US Court of Appeals for the Fifth Circuit, “historically a pro-business court,” said Raymond James analysts. That court is “expected to make a quick ruling after a rare 1-hr oral argument today,” they said. “Win or lose, the Supreme Court could become involved. Regardless, the ban will be amended, which could lead to additional litigation.”

US inventories
The Energy Information Administration said July 8 commercial US crude inventories fell 5 million bbl to 358.2 million bbl in the week ended July 2, well below the Wall Street consensus for a 2 million bbl decrease. Gasoline stocks gained 1.3 million bbl to 219.4 million bbl in the same period, exceeding analysts’ expectations of a 100,000 bbl addition. Distillate fuel inventories edged up 300,000 bbl to 159.7 million bbl while the market had expected a build of 1.6 million bbl.

Imports of crude into the US dropped 68,000 b/d to 9.4 million b/d in that same week, primarily due to disruption of Mexico’s crude exports by Hurricane Alex. In the 4 weeks through July 2, US crude imports averaged 9.7 million b/d, up 449,000 b/d above the comparable period in 2009.

The input of crude into US refineries increased 135,000 b/d to 15.2 million b/d in the latest week, with units operating at 89.9% of capacity. Gasoline production decreased to 9.4 million b/d, and distillate fuel production declined to 4.4 million b/d.

EIA also reported the injection of 78 bcf of gas into US underground storage in the week ended July 2. That increased the amount of working gas in storage past 2.76 tcf. That’s 23 bcf less than in the same period a year ago but 285 bcf above the 5-year average.

Energy prices
The August contract for benchmark US sweet, light crudes gained $2.09 to $74.07/bbl July 7 on the New York Mercantile Exchange. The September contract escalated $2.13 to $74.64/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.09 to $74.07/bbl. Heating oil for August delivery advanced 6.15¢ to $1.98/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 5.4¢ to $2.03/gal.

The August contract for natural gas dropped 11.7¢ to $4.57/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 13¢ to $4.71/MMbtu.

In London, the August IPE contract for North Sea Brent gained $2.06 to $73.51/bbl. Gas oil for July was up $3.25 to $626.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes inched up 1¢ to $69.74/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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