MARKET WATCH: Crude oil futures price tumbles below $72/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 1 -- The front-month crude price dropped 3.7% Aug. 31 in the New York market on “fears that Hurricane Earl would put a damper on East Coast Labor Day plans and gasoline demand,” said analysts in the Houston office of Raymond James & Associates Inc.

The Category 3 hurricane also could shut in some Atlantic Coast refining capacity just before the Labor Day holiday in the US on Sept. 6, which traditionally marks the end of the US summer driving season. East Coast refineries are preparing for the storm, which could sweep from North Carolina as far north as Newfoundland and Labrador.

“Natural gas prices were flat on similar fears that the hurricane could cut demand with widespread East Coast power outages,” Raymond James analysts reported.

On the other hand, Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said some participants were “befuddled” by the market’s sharp decline. “Granted the reports about business activity in August in the US growing at the slowest pace this year were a downer, but the decline seemed driven more by the [investment] funds throwing in the towel due to the continued absence of any decently positive economic data,” he said.

The Aug. 31 trading session in New York “was indeed a rare occurrence (in recent history) of the crude oil market working totally outside of the dynamics of the Standard & Poor’s 500 index. End of the month positioning could also have been a factor behind the West Texas Intermediate sell-off while equities were relatively well supported,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

He noted large speculators “have started to shift to the short side” on petroleum commodities, with the WTI sell-off “a sign of force” from short-side traders. “This will likely shake the confidence of small speculators that were recently under the impression that trading oil is as easy as running a parallel line to the S&P 500,” Jakob said.

Jakob reported, “The dollar index is relatively stable, but currently the main focus is on testing the resolve of the Central Banks in Japan and Switzerland as those two currencies are being bought very aggressively. The yen has never been so strong since 1995 while the Swiss franc is at a record high to the euro.”

US inventories
The Energy Information Administration said Sept. 1 commercial US crude inventories gained 3.4 million bbl to 361.7 million bbl in the week ended Aug. 27, far exceeding the Wall Street consensus for a 1.2 million bbl increase. Gasoline stocks dropped 200,000 bbl to 225.4 million bbl, exactly in line with the consensus for that commodity. Finished gasoline inventories decreased while blending components increased. Distillate fuel inventories fell 700,000 to 175.2 million bbl, vs. expectations for a 1.1 million bbl increase.

Import of crude into the US decreased 202,000 b/d to 9.7 million b/d in the same week. In the 4 weeks ended Aug. 27, crude imports averaged 9.6 million b/d, 530,000 b/d more than in the comparable period in 2009.

The input of crude into US refineries was down 68,000 b/d to 14.8 million b/d last week, with units operating at 87% of capacity. Gasoline production declined to 9.3 million b/d in that period, while distillate fuel production decreased to 4.3 million b/d.

Energy prices
The October contract for benchmark US light, sweet crudes fell $2.78 to $71.92/bbl Aug. 31 on the New York Mercantile Exchange. The November contract dropped $2.37 to $73.54/bbl. On the US spot market, WTI at Cushing, Okla., was down $2.78 to $71.92/bbl. Heating oil for September delivery declined 3.08¢ to $1.99/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 4.47¢ to $1.89/gal.

The October natural gas contract inched up 0.4¢ to $3.82/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 2¢ to $3.79/MMbtu.

In London, the October IPE contract for North Sea Brent crude lost $1.96 to $74.64/bbl. Gas oil for September was down $5.25 to $641.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes declined 66¢ to $72.39/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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