MARKET WATCH: Energy prices climb; DOE says SPR oil 'oversubscribed'

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 1 -- Energy prices continued climbing June 30 albeit at slower rates with the front-month contract for benchmark US crudes up 1% in New York as spending cuts endorsed by Greek officials boosted the euro against the dollar.

Natural gas also increased 1.5% “after a neutral-to-bullish storage number provided a moderate rally,” said analysts in the Houston office of Raymond James & Associates Inc.

The Energy Information Administration reported the injection of 78 bcf of natural gas into US underground storage during the week ended June 24, below Wall Street’s consensus for an input of 81 bcf. It increased working gas in storage to 2.4 tcf, down 243 bcf from the storage level in the comparable week last year and 63 bcf below the 5-year average (OGJ Online, June 30, 2011).

“Gaining steam from the commodities, energy stocks outperformed the broader markets (up by 1%), with the Oil Service Index was up 2% and the [SIG Oil Exploration & Production Index] EPX was up 1%,” they said. Both oil and gas prices were down in early trading July 1.

“Yesterday was the end of the quarter and the Standard & Poor’s 500 index had a magnificent rally so far this week, rebounding on the 200-day moving average and going yesterday through the 50-day and 100-day moving average. For the year, the S&P is up 5% while the S&P GSCI [Goldman Sachs Commodity Index] is up 2.71%,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

US equities received some support from a better-than-expected Chicago Purchasing Managers Index (PMI). “Overnight, however, the official Chinese PMI was published at 50.2, the lowest level in 28 months,” said Jakob. “The number is not a full surprise as the advanced look at the PMI had already indicated the possibility of the PMI to be just a fraction above contraction.”

The European Consumer Price Index was confirmed at 2.7%, increasing expectations of an interest rate hike by the European Central Bank on July 7. This is providing support to the euro, but the Swiss franc is starting to be sold as Greece has “decided to postpone its collapse to a later date,” said Jakob.

SPR release ‘oversubscribed’
Meanwhile, the Department of Energy described interest in the tender of crude from the US strategic reserve as “very high and oversubscribed,” he said. “We can therefore expect that all of the 30.2 million sweet bbl offered will be taken, and the question now is where do we find the spare storage tank capacity to hold all those barrels?”

Jakob said, “We count five large international oil-trading companies taking floating storage options in tankers (a mix of very large crude carriers and Suezmaxes). Some oil might have to stay on the water while some room is made in the onshore tanks.”

He noted, “A few investment banks had been expressing doubt that there will be any takers for the SPR barrels, but the DOE’s comments of yesterday indicate this was wishful thinking while those institutions rant about market manipulation. We now work with the assumption that the full 30.2 million SPR bbl will be taken, and we therefore continue to expect that Light Louisiana Sweet crude will be under pressure from the SPR release, and we continue to view Brent as overbought vs. West Texas Intermediate.”

Energy prices
The August contract for benchmark US light, sweet crudes gained 65¢ to $95.42/bbl July 30 on the New York Mercantile Exchange. The September contract increased 64¢ to $95.96/bbl. On the US spot market, WTI at Cushing, Okla., was up 65¢ to $95.42/bbl.

Heating oil for July delivery increased 1.25¢ to $2.93/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month advanced 2.19¢ to $3.03/gal.

The August natural gas contract moved up 5.9¢ to $4.37/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 9.7¢ to $4.28/MMbtu.

In London, the August IPE contract for North Sea Brent crude increased 8¢ to $112.48/bbl. Gas oil for July gained $3.25 to $926.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes advanced $1.31 to $107.50/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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