MARKET WATCH: Crude oil price gained 5.5% through last week

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 12 -- The front–month crude oil contract advanced 0.9% on July 9 in the New York market, gaining 5.5% through the week on mixed demand forecasts and an unexpected drop in US inventories.

The Energy Information Administration reported commercial US crude inventories fell 5 million bbl to 358.2 million bbl in the week ended July 2. Gasoline stocks gained 1.3 million bbl to 219.4 million bbl in the same period. Distillate fuel inventories edged up 300,000 bbl to 159.7 million bbl (OGJ Online, July 8, 2010).

Natural gas, however, hovered at $4.40/MMbtu on a bearish EIA report of the injection of 78 bcf of gas into US underground storage in the week ended July 2. In Houston, analysts at of Raymond James & Associates Inc. said broader markets rallied heading into the season for second-quarter earnings reports, with companies in the Standard & Poor’s 500 index expected to jump 25%. The broader markets outperformed energy stocks.

Raymond James said China announced over the weekend its net oil purchases climbed to 5.39 million b/d, surpassing its previous record. However, oil and gas prices were down in early trading July 12 “as traders locked in last week's gains ahead of earnings,” the analysts said.

Commodity prices have increased volatility since April, said Raymond James analysts. “On the natural gas side, warmer-than-normal temperatures across the US (especially in the gas-burning South) coupled with heightened activity in the tropics (and probably a fair amount of short-covering) induced a substantial rally in prices from the low $4/Mcf range to the low $5/Mcf range. Prices have settled back in the mid $4/Mcf range, and we remain very concerned about summer-ending storage levels and the potential for another gas price collapse,” they said.

Nevertheless, they said, “We are truing up our forecast to account for higher summer prices thus far. Our new 2010 natural gas price forecast is $4.51/Mcf, up from $4.25/Mcf. For 2011, we are still forecasting $4.75/Mcf, consistent with our long-term bearish stance on natural gas.”

For oil, the story is different, however, the analysts said. “Fears of a ‘double dip’ recession, largely brought on by sovereign debt issues in Europe and fiscal tightening measures (or rhetoric thereof) in China, have driven a pullback in oil prices” to the mid-$70/bbl range at present from nearly $90/bbl in April. “Global oil demand has been stronger in both the US and China,” they observed. “Additionally, [President Barack] Obama's [deepwater drilling] moratorium in the US will probably tighten non-OPEC supply more than some may realize,” the analysts reported.

Nevertheless, Raymond James reduced its 2010 oil price forecast to $78.55/bbl, down from $81.66/bbl previously and lowered its 2011 forecast to $90/bbl from $95/bbl.

Energy prices
The August contract for benchmark US light, sweet crudes climbed 65¢ to $76.09/bbl July 9 on the New York Mercantile Exchange. The September contract advanced 60¢ to $76.63/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 65¢ to $76.09/bbl. Heating oil for August delivery gained 2.04¢ to $2.03/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 1.89¢ to $2.07/gal.

The August natural gas contract inched up 0.3¢ but its closing price was essentially unchanged at $4.40/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 10.5¢ to $4.42/MMbtu.

In London, the August IPE contract for North Sea Brent crude was up 71¢ to $75.42/bbl. Gas oil for July increased $4 to $644.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes climbed 93¢ to $72.79/bbl. So far this year, OPEC’s basket price has averaged $75.73/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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