MARKET WATCH: Crude oil price slips lower as China raises interest rate

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 7 -- Energy commodity prices were mixed July 6, with crude slipping lower in the New York market after the People's Republic of China announced another increase in the yuan benchmark interest rate as of July 7 ahead of the official June consumer price index (CPI) data release on July 15.

“The broader markets ended flat, as concerns regarding the national debt ceiling caused investors to take pause after last week's rally,” said analysts in the Houston office of Raymond James & Associates Inc. Despite forecasts for warmer-than-normal weather, they said, a resurgence in nuclear utilization dropped natural gas prices by 3%. Lower commodity prices pulled down corporate energy stocks.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “Oil ended broadly flat after recovering from some intraday sell-off on the back of further monetary tightening out of China and uninspiring US Institute for Supply Management (ISM) nonmanufacturing data.” He said, “The term structure for West Texas Intermediate strengthened in anticipation of further crude stock draws in the US. European refining margins weakened further as product cracks fell across the barrel.”

Zhang reiterated, “China’s headline CPI is expected to hit 6% for June.” He noted, “As happened on all previous occasions, oil prices suffered a brief sell-off before recovering to the level prior to the news…Chinese monetary tightening tends to have a subdued impact on the oil market.”

Zhang said, “For now, the US economy shows signs of a rebound after the soft patch in April-May, as the disruption to the supply chain on the back of Japan’s earthquake has waned. However, the recovery will be sluggish as the most recent data suggest. We remain cautious on near-term oil prices, as the International Energy Agency’s oil releases have yet to work through the physical market. Nevertheless, there is still abundant liquidity in the financial system. In addition, the net length held by money managers has been cut back to the [lowest] level since November 2010. Both could drive oil prices even higher.”

WTI and Brent averaged $102.34/bbl and $116.98/bbl, respectively, in the second quarter compared with the Standard Bank Group’s forecasts of $105/bbl and $113/bbl. “The WTI-Brent spread averaged $14.64/bbl in the second quarter, significantly overshooting our forecast of $8/bbl,” Zhang said. Standard Bank isn’t changing its WTI price forecast for this year but is increasing its Brent price outlook for the third and fourth quarters by $8/bbl to an average $116/bbl for Brent in 2011. That would take the WTI-Brent spread to an average of $15/bbl. “For 2012, we maintain our forecast for the WTI price at $110/bbl, but increase our Brent price forecast by $5/bbl to $120/bbl,” said Zhang.

He predicted oil prices will “pause” in the third quarter “because of a softening global economy, the IEA’s express willingness to intervene, and still sluggish demand for oil products in most developed economies.” However, he expects oil prices to rally in the fourth quarter as weakness in the global economy and the temporary increase of crude with the release of emergency reserves “work their way through the system.” Zhang said, “The abundant liquidity in the financial system favors oil as a financial asset.”

US inventories
The Energy Information Administration said July 7 commercial inventories of benchmark US crudes declined 900,000 bbl to 358.6 million bbl in the week ended July 1, less than the Wall Street consensus for a 2.5 million bbl drop. Crude stocks remain above average for this time of year. Gasoline inventories were down 600,000 bbl to 212.5 million bbl in the same period, more than the 200,000 bbl decline analysts expected. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel stocks dipped 200,000 bbl to 142.1 million bbl. Traders were anticipating a 900,000 bbl increase.

The American Petroleum Institute earlier reported US crude inventories fell 3.2 million bbl to 357.1 million bbl last week. It reported gasoline stocks dropped 1.9 million bbl to 209.9 million bbl, with distillate fuel down 1.6 million bbl to 140.6 million bbl.

EIA reported imports of crude into the US increased 976,000 b/d to 9.9 million b/d last week. In the 4 weeks through July 1, crude imports averaged 9.1 million b/d, which was 546,000 b/d less than in the comparable period last year. Total motor gasoline imports last week averaged 700,000 b/d, with distillate fuel imports at 123,000 b/d.

The input of crude into US refineries inched up 68,000 b/d to a total 15.3 million b/d last week, with units operating at 88.4% of capacity, said EIA officials. Gasoline and distillate fuel production both increased to respective totals of 9.5 million b/d and 4.4 million b/d. That weekly report was delayed by a day due to the Independence Day holiday on July 4.

EIA also reported the injection of 95 bcf of natural gas into US underground storage last week. That put working gas in storage at 2.527 tcf, down 224 bcf from the year-ago level, and 48 bcf below the 5-year average.

Energy prices
The August contract for benchmark US sweet, light crudes slipped 24¢ to $96.65/bbl July 6 on the New York Mercantile Exchange. The September contract declined 25¢ to $97.13/bbl. On the US spot market, WTI at Cushing, Okla., kept in step with the front-month futures contract, down 24¢ to $96.65/bbl.

Heating oil for August delivery inched up 0.67¢ to $2.96/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 2.02¢ to $3/gal.

The August natural gas contract dropped 14.6¢ to $4.22/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 3¢ to $4.35/MMbtu.

In London, the August IPE contract for North Sea Brent crude dipped just 1¢ to $113.62/bbl.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained $1.14 to $108.26/bbl.

Contact Sam Fletcher at

Related Articles

Market watchers' adjustments offer hints of recovery

01/26/2015 Because markets look ahead, changes in standard forecasts offer potentially important signals during storms such as the one now pummeling the oil a...

A message from Oil & Gas Journal


An important transition occurred during production of this issue of Unconventional Oil & Gas Report.

MARKET WATCH: Crude oil prices down as US government shutdown lingers

10/16/2013 The front month crude oil contract on the New York market dropped to the lowest level on Oct. 15 since it last settled below $100/bbl on July 2.

MARKET WATCH: Crude oil traded higher amid Washington budget talks

10/15/2013 Crude oil futures prices traded higher on the New York market Oct. 14 as US lawmakers reported progress in ongoing efforts toward reaching an agree...

MARKET WATCH: Oil prices close down at end of volatile week

10/14/2013 The NYMEX November crude contract lost 99¢ on Oct. 11, settling at $102.02/bbl ending a week of volatile trading. The December contract fell 83¢ to...

MARKET WATCH: Oil prices continue falling as Syria risk apparently lessens

09/17/2013 Oil futures prices reached their lowest level in 3 weeks with the Sept. 16 closing while the US and Russia agreed to terms under which Syria is exp...

MARKET WATCH: Oil prices rebound slightly awaiting US decision on Syria

09/04/2013 Oil prices climbed on New York and London markets Sept. 3 in response to comments indicating key US lawmakers will support US President Barack Obam...

MARKET WATCH: Syria crisis puts pressure on some oil markets

08/27/2013 Crude oil prices in world markets edged upwards Aug. 26 on reports that “tolerance of the West for what’s taking place in Syria appears to be comin...

MARKET WATCH: Oil futures rise Aug. 23 on Lebanon violence

08/26/2013 Oil futures prices rose on the New York market Aug. 23, and traders attributed the increase to escalating violence in the Middle East that added to...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts

The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

When Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.


On Demand

Prevention, Detection and Mitigation of pipeline leaks in the modern world

Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 


Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected