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 samf@ogjonline.com.

Related Articles

KMI brings second Texas condensate splitter online

07/15/2015 Kinder Morgan Inc., Houston, has commissioned the second of two splitters at the company’s new petroleum condensate processing facility located nea...

Michigan DEQ report urges ban of heavy oils in Mackinac Straits pipeline

07/15/2015 Michigan’s Department of Environmental Quality’s Petroleum Pipeline Task Force issued a report that recommended that heavy crude and oil sands be k...

PHMSA orders Plains All American to keep Illinois pipeline shut down

07/15/2015 The US Pipeline and Hazardous Materials Safety Administration issued a corrective action order directing Plains All American Pipeline LP to keep a ...

Advocates urge US to end its crude export ban in Iran agreement’s wake

07/15/2015 Advocates called for removing the US ban on exports of domestically produced crude oil in the wake of the July 14 international nuclear weapons agr...

Operators seen still able to raise capital

07/15/2015 Oil and gas operators remain able to raise capital despite falling crude oil prices and, for many, deteriorating financial conditions, according to...

MARKET: NYMEX crude oil prices rise following news of Iran deal

07/15/2015 Light, sweet crude oil prices settled higher on the New York market July 14 following overnight news that Iran reached a tentative agreement with i...

WPX Energy to buy privately held RKI E&P in $2.35 billion deal

07/15/2015 WPX Energy Inc. agreed to buy privately held RKI Exploration & Production LLC of Oklahoma City for $2.35 billion in a move intended to help WPX...

US House panel grills PHMSA’s interim chief over pipeline safety delays

07/14/2015 Members of a US House Energy and Commerce subcommittee asked US Pipeline and Hazardous Materials Safety Administration Interim Executive Director S...

Market seen balancing with OPEC at target

07/14/2015 Target-level production of crude oil by members of the Organization of Petroleum Exporting Countries would balance the oil market in 2016, accordin...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

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
Available Webcasts


Operating a Sustainable Oil & Gas Supply Chain in North America

When Wed, Oct 7, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.

register:WEBCAST


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


Emerson Micro Motion Videos

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