MARKET WATCH: Surprise stock gains, weakened economy cuts energy prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 22 -- After climbing for 2 days, crude and petroleum product prices dropped July 21 on the New York market on a surprise report of gains in US crude, gasoline, and distillate fuel inventories.

“The slide in prices accelerated after Federal Reserve Chairman Ben Bernanke called the economic outlook ‘unusually uncertain.’ The equity markets plunged after Bernanke’s remarks,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. However, he said, “Concerns of supply disruption in the Gulf of Mexico due to the development of a tropical storm in the Caribbean somewhat limited the slide in prices.”

The National Hurricane Center in Miami reported July 22 a tropical depression in the Bahamas that could reach the Macondo spill site in less than 3 days. Seas were reported already choppy near the well site, with 5 ft waves.

The front-month natural gas contract fell 1.7% on the New York market due to “prevailing oversupply concerns,” said Sharma. “However, the forecast of hotter than normal weather over the coming days is preventing prices from falling lower as concerns about the moderating economic growth are further weighing on prices.”

US inventories
The Energy Information Administration reported commercial US crude inventories increased 400,000 bbl to 353.5 million bbl in the week ended July 16, counter to Wall Street’s consensus for a drop of 1.2 million bbl. Gasoline stocks climbed 1.1 million bbl to 222.2 million bbl in that same week, exceeding traders’ expectations of a 700,000 bbl increase. Distillate fuel inventories jumped by 3.9 million bbl to 166.6 million bbl, surpassing market forecasts for a 1.5 million bbl build (OGJ Online, July 21, 2010).

“Crude imports posted the biggest weekly gain since April, increasing 7.5% to 9.98 million b/d,” Sharma said.

EIA also reported July 22 the injection of 51 bcf of natural gas into US underground storage last week, compared with Wall Street’s consensus for a 52 bcf input. That raised working gas in storage above 2.89 tcf, down 52 bcf from a year ago but 261 bcf above the 5-year average.

A consortium led by ExxonMobil Corp., and including Chevron Corp., ConocoPhillips, and Royal Dutch Shell PLC, is pooling $1 billion to form the Marine Well Containment Co., a nonprofit joint venture to provide rapid response to major oil spills in the Gulf of Mexico (OGJ Online, July 21, 2010). “This is a tangible example of a proactive peace offering from the industry to Washington amid the deepwater drilling moratorium and discussion of future regulatory changes,” said analysts in the Houston office of Raymond James & Associates Inc.

Pritchard Capital Partners said, “On the margin, having a large-scale response effort on stand-by should lead to incrementally higher drilling activity in the gulf, post moratorium.”

Meanwhile, Robert Bea, an expert on catastrophes and an engineering professor at the University of California at Berkeley, said US regulators should focus less on blanket regulation and more on a case-by-case basis in dealing with the offshore oil industry. In a Bloomberg news services report, Bea said a blanket moratorium on deepwater drilling unfairly penalizes operators who have top-notch safety equipment and safety procedures in place. He said there should be one complete authority determining drilling and safety procedures including the authority to shut the well down if it is not in compliance. Bea participated in earlier studies of the explosion of the Columbia space craft and Hurricane Katrina’s demolition of New Orleans levees.

“Given that deepwater drilling produces 25% of total US oil supply, we do not doubt that it will resume—the main question is simply when?” said Raymond James analysts.

Energy prices
The new front-month September contract for benchmark US sweet, light crudes dropped $1.02 to $76.56/bbl July 21 on the New York Mercantile Exchange. The October contract lost 92¢ to $77/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.16 to $76.28/bbl. Heating oil for August delivery declined 3.55¢ to $1.99/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 1.08¢ to $2.07/gal.

The August natural gas contract fell 7.7¢ to $4.51/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 8¢ to $4.69/MMbtu.

In London, the September IPE contract for North Sea Brent crude lost 85¢ to $75.37/bbl. Gas oil for August was down $10 to $637/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was unchanged at $73.16/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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