MARKET WATCH: Crude oil price climbs above $73/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 27 -- Oil prices continued climbing for a second session Aug. 26 in the New York market, with the front-month crude contract up 1.16%, topping $73/bbl in its recent trend of trading as a financial instrument while ignoring market fundamentals of supply and demand.

“Crude oil continues to slowly pick itself up following the sharp sell-off on [Aug. 24], with front month West Texas Intermediate crude appearing to be building a base just above $73/bbl.” said analysts at Standard New York Securities Inc., part of the Standard Bank Group Ltd. “Overall, crude oil remains range bound with technical signals likely to continue dominating proceedings,” they said.

“Natural gas fell 1.4% to an 11-month low, sinking to September levels, after a larger-than-expected build of 40 bcf was reported by the Energy Information Administration” for the week ended Aug. 20, said analysts in the Houston office of Raymond James & Associates Inc. (OGJ Online, Aug. 26, 2010). “Gas futures have now traded below their 100-day moving average since Aug. 9,” they said.

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, reported Aug. 27, “Caught between dissipating weather support and bad economic data, natural gas has declined 7.3% this week alone and looks a bit oversold at this point considering prices are now significantly below the appreciable fuel-switching floor of $4.50[/MMbtu].”

Other petroleum futures contracts shook off pressure “from weeks of bearish news” after the US Department of Labor reported initial jobless claims fell more than economists expected, Sharma said. First-time applications for unemployment benefits dropped to 473,000 during the week ended Aug. 21 from 500,000 (revised to 504,000) the prior week. Economists generally expected 490,000 new claims.

“However, the job market remains very weak as the total number of people receiving unemployment benefits (including continuing claims and the ones who are now collecting emergency aid after using traditional benefits) remains above 10 million,” Sharma reported. “With high petroleum inventory levels, a frail job market, and businesses reining in capital spending, as evidenced by the durable goods data, the fundaments for crude remain weak and likely limit any sustained price appreciation until the recovery finds its footing again.”

Refining outlook
Jacques Rousseau, managing director of equity research, RBC Capital Markets, Reston, Va., reported: “We remain concerned about refining sector supply-demand fundamentals. Demand remains a concern due to the slow pace of global economic growth, and the supply picture could change for the worse if some recently idled refineries are restarted in 2011. We maintain our view that a significant amount of spare capacity still remains, and another 2-3 million b/d of global refining capacity must be closed before a sustained improvement in refining margins is realized.”

He said crude differentials should improve starting in 2012 since the Organization of Petroleum Exporting Countries is expected to raise production and additional pipeline capacity should increase the level of Canadian oil exported to the US. “In the near term, we expect US refiners to benefit from the fall turnaround season, which should lower supply by approximately 800,000 b/d in September and October, similar to year-ago levels. This should result in refinery utilization rates falling to the low- to mid-80% range, a reduction to inventories of gasoline and distillate, and an improvement in refining margins and refiner stock prices,” said Rousseau.

Meanwhile the US Department of Commerce reported the US gross domestic product increased at a 1.6% annual rate in the second quarter, down from an earlier estimate of 2.4% and well below the 3.7% pace for the first quarter.

Federal Reserve Chairman Ben Bernanke said Aug. 27 the Fed will consider another large-scale purchase of securities if the economy deteriorates “significantly.” Olivier Jakob at Petromatrix, Zug, Switzerland, said, however, “The Fed has so far not been able to restore growth and jobs and trying to artificially support the markets does not necessarily bring confidence back, as can be evidenced by the continued week after week outflows from exposure to equities.”

In other news, Standard Bank analysts said PetroChina Co. wants to boost cooperation with global oil companies and increase acquisitions. “State controls on fuel prices have restrained profit growth, with the company now looking further afield. In particular, the company is looking at boosting cooperation with countries like Iraq, Kazakhstan, Russia, Venezuela, Chad, and Nigeria,” they said.

Energy prices
The October contract for benchmark US light, sweet crudes advanced 84¢ to $73.36/bbl Aug. 26 on the New York Mercantile Exchange. The November contract gained 98¢ to $74.22/bbl. On the US spot market, WTI at Cushing, Okla., climbed $1.49 to $73.36/bbl, once again in step with the closing price for the front-month crude futures contract. Heating oil for September delivery increased 3.86¢ to $2.01/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month escalated 4.46¢ to $1.91/gal.

The September natural gas contract dropped 5.4¢ to $3.82/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 13.5¢ to $3.81/MMbtu.

In London, the October IPE contract for North Sea Brent crude increased $1.54 to $75.02/bbl. Gas oil for September was up $19 to $639.50/tonne.

The average price for OPEC’s basket of 12 reference crudes gained $1.41 to $71.41/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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