MARKET WATCH: Weak dollar boost crude price; warm weather raises gas

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 29 -- The price of crude oil jumped almost 3% June 28 in the New York market as the euro strengthened and the dollar weakened on improved prospects for a bailout of the Greek sovereign debt. Natural gas was up 2% on forecasts for warm weather in July.

“Despite mixed economic data from the US, the broader market rose more than 1%,” said analysts in the Houston office of Raymond James & Associates Inc. “Combining the rising market with the strength in commodities, energy stocks outperformed.” Both crude and gas prices continued to rise in early trading June 29.

Olivier Jakob at Petromatrix in Zug, Switzerland, reported, “Crude oil was strong yesterday but so were many of the major commodities,” including corn, wheat, and sugar. He noted, “We are approaching the end of the quarter and the midyear mark, and the Standard & Poor’s Goldman Sachs Commodity Index (GSCI) has managed to move back slightly in the positive for the year (up 0.88%) and hopefully stays positive for the official print of the quarter. At the end of a quarter, there is always the risk of seeing some shift in asset allocations distorting some of the market values although it is difficult to make a generalization out of this observation.”

Jakob said investors will continue to focus on developments in Greece through June 30. If the government’s austerity plan is adopted, he said, “It will not produce much incremental oil demand.” Still, he said, “Greece has taken so much of the focus in recent weeks that the result of the vote will necessarily kick-in some cross asset trading.”

Jakob pointed out, “West Texas Intermediate managed to regain its 200-day moving average [price], which will now be the support level to watch ($92.95/bbl) while the next test of resistance moves to $95/bbl. As in Brent, there is not yet a positive momentum in WTI, and overall there is likely to be less and less of risk taking as we go forward in the week due to the long July 4 weekend in front of us. Volume usually peaks on Wednesdays due to the [US inventory report], but we expect to see declining volume on June 30-July 1 [going into the US Independence Day weekend holiday].”

Meanwhile, he said, “Both on a time-spread comparison basis and on a Light Louisiana Sweet [price] comparison, we continue to find that Brent is overbought vs. WTI.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “European fuel oil and middle distillate cracks weakened yesterday following the International Energy Agency’s detailed announcement on European reserve release (OGJ Online, June 28, 2011).” He said, “We maintain our views that the recent rally in European refining margins is overdone and expect further downward correction. Meanwhile, we remain bearish on the WTI term structure.”

US inventories
The Energy Information Administration said June 29 commercial inventories of benchmark US crude (excluding stocks in the government Strategic Petroleum Reserve) fell 4.4 million bbl to 359.5 million bbl in the week ended June 24, well past the Wall Street consensus for a 1.5 million bbl draw. Gasoline stocks dropped 1.4 million bbl to 213.2 million bbl in the same period, against market expectations of an 800,000 bbl increase. Finished gasoline stocks decreased while blending components increased. Distillate fuel inventories rose 300,000 bbl to 142.3 million bbl, short of the 1.1 million bbl build analysts anticipated.

Imports of crude into the US dropped 271,000 b/d to 8.9 million b/d last week. In the 4 weeks through June 24, US imports averaged 8.8 million b/d, down 891,000 b/d from the comparable period in 2010. Gasoline imports last week averaged 683,000 b/d; distillate fuel imports averaged 80,000 b/d.

The input of crude into US refineries was down by 31,000 b/d to 15.2 million b/d in the week ended June 24 with units operating at 88.1% capacity. Gasoline production decreased to 9.1 million b/d. Distillate fuel production increased to 4.4 million b/d.

The American Petroleum Institute earlier reported a net draw of 2.7 million bbl of crude from US inventory last week, including a 4 million bbl reduction in commercial storage on the Gulf Coast. “That leaves US Gulf Coast crude oil stocks 21 million bbl below maximum levels, leaving the Gulf Coast spare storage capacity still below the 30 million bbl offered out of the SPR” for prompt delivery, Jakob said. “If the refineries do go for the SPR barrels, they need to have the oil on the water go slow-steaming in order to create the room in the storage tanks. Politically, the crude oil stock draw will be to the benefit of the IEA and of the [Obama] administration as they can make the case that the action is to answer a supply situation and not to manipulate prices. It remains, however, that the overall levels of stocks in the US are far from critical levels.”

He also noted the first tropical storm of the 2011 season, Arlene, will land in the eastern shores of Mexico and will be no threat to oil assets. However, Jakob said, “The preemptive sale from the SPR might make trading the storms this year more from the demand side (loss of refinery demand on a landfall) than the supply side (shutdown of platforms).”

Energy prices
The August contract for benchmark US light, sweet crudes escalated by $2.28 to $92.89/bbl June 28 on the New York Mercantile Exchange. The September contract gained $2.29 to $93.46/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.28 to $92.89/bbl.

Heating oil for July delivery increased 6.08¢ to $2.83/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month rose 8.21¢ to $2.89/gal.

The July contract for natural gas climbed 10.1¢ to $4.36/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 6.8¢ to $4.34/MMbtu.

In London, the August IPE contract for North Sea Brent increased $2.79 to $108.78/bbl. Gas oil for July gained $17.25 to $890.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained $2.03 to $103.59/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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