MARKET WATCH: Crude oil price rises, ending 5-day fall

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 18 -- Energy prices rose Aug. 17 with the front-month crude contract breaking a five-session losing streak that had carried it to a 5-week low—but still above $75/bbl—in the New York market.

“Positive earnings reports gave a boost to the broader market as the Standard & Poor’s 500 rose 1.2%,” said analysts in the Houston office of Raymond James & Associates Inc. Crude prices followed, up 0.7% for the day.

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “The dollar’s 0.5% decline against the euro further bolstered prices while a projected decline in crude inventories provided additional support.” Natural gas was up 0.9% for the day “as the Commerce Department reported that the industrial production in the US increased by 1% vs. consensus of a 0.5% increase, signaling continuation of the robust industrial demand for the fuel,” he said. “Additionally, the supply disruptions and market anxiety is likely to increase as we enter the higher activity period of the hurricane season. Despite the lower hurricane activity over the last 2 months, 14 to 20 named storms are expected to be formed in the Atlantic this season, of which 4 to 6 are expected to turn into major hurricanes.”

Analysts at Standard New York Securities Inc., part of The Standard Bank Group Ltd., reported, “Crude oil again looked towards the dollar for direction.” However, they said oil diverged in early trading Aug. 18. “Broadly speaking, crude oil is still building a base and consolidating after the sell-off seen during the middle of last week. The front month West Texas Intermediate contract appears to be building a base around $75/bbl, but still looks to remain vulnerable,” they said.

WTI started the Aug. 17 session “being oversold to the exogenous correlation and that status increased by the close to an oversold basis of $2/bbl to the implied value based on the average of the correlations to the S&P 500, the market volatility index, and the euro; as the S&P managed to rebound while WTI was only marginally higher. US industrial production was better than expected, but housing starts were disappointing and included a downward revision to the June numbers,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

“Part of the reason why WTI was only marginally higher was because most of the action yesterday was on the WTI-Brent spread,” Jakob said. “The crude market priced a significant shift in the Atlantic crude oil arbitrage. At the start of August, WTI was at a premium to Brent of about 80¢/bbl; it was yesterday at a discount of about 80¢/bbl to Brent, and we would start to take profit on that short arbitrage trade as the October-November WTI time spread is now being priced closer to full carry economics.”

He noted, “The widest crude oil contango lately has been in Middle Eastern crude oil, and this together with a sharp fall of freight rates has led the Middle East to export some of its contango to the US. This is then moving WTI at a discount to Brent, and the US will now work harder to divert cargoes supposed to be sailing to its shores. The next step in relative values should be to see the US starting now to export some of its contango to Brent. That is also why we would rather take the profits on the short October WTI-Brent rather then wait hoping to also have the icing of the cake.” The sharp fall of WTI vs. Brent resulted in a strong rebound in product cracks, said Jakob.

In other news, Royal Dutch Shell PLC declared force majeure on its production of Bonny Light crude as increased sabotage of pipelines in Nigeria has reduced output by 100,000 b/d.

US inventories
The Energy Information Administration said Aug. 18 commercial US crude inventories declined 800,000 bbl to 354.2 million bbl in the week ended Aug. 13, not quite as low as the Wall Street consensus for a 1 million bbl decrease. Gasoline stocks remained virtually unchanged at 223.3 million bbl, compared with market expectations of a 400,000 bbl dip. Finished gasoline inventories decreased while blending components inventories increased. Distillate fuel inventories were up 1.1 million bbl to 174.2 million bbl, below the consensus for a 1.5 million bbl increase.

The American Petroleum Institute earlier reported US crude stocks jumped 5.9 million bbl to 358.6 million bbl in the same week, with gasoline inventories up 2 million bbl to 225.5 million bbl. Distillate fuel stocks gained 2.1 million bbl to 167.7 million bbl, API said.

EIA reported imports of crude into the US increased 120,000 b/d to 9.6 million bbl last week. In the 4 weeks through Aug. 13, crude imports averaged 9.9 million b/d, up 707,000 b/d from the comparable 4-week period in 2009. Gasoline imports averaged 1.1 million b/d in the latest week, while distillate fuel imports averaged 260,000 b/d.

Input of crude into US refineries was up 172,000 b/d to 15.2 million b/d in the latest week with units operating at 90% of capacity. Gasoline production increased to 9.4 million b/d, while distillate fuel production decreased to 4.2 million b/d.

Energy prices
The September contract for benchmark US light, sweet crudes increased 53¢ to $75.77/bbl Aug. 17 on the New York Mercantile Exchange. The October contract gained 56¢ to $76.16/bbl. On the US spot market, WTI at Cushing, Okla., was up 53¢ to $75.77/bbl. Heating oil for September delivery rose 3.71¢ to $2.03/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 2.89¢ to $1.95/gal.

The September natural gas contract regained 3.9¢ to $4.27/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 4¢ to $4.31/MMbtu.

In London, the new front-month October IPE contract for North Sea Brent crude gained $1.30 to $76.93/bbl. Gas oil for September advanced $15 to $648/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 98¢ to $73.25/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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