MARKET WATCH: Energy prices waffle without much change

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 27 -- Crude and natural gas prices seesawed through an arc of plus or minus 2%, with crude ending slightly up in July 26 trading as investors worried whether government officials can reach agreement on the US debt, analysts reported.

“Investors aren't so sure as evidenced by the sideways trading of the Standard & Poor’s 500 over the past 6 months (S&P down marginally yesterday),” said analysts in the Houston office of Raymond James & Associates Inc. They reported oil futures in the red, with the lead natural gas contract “hovering around its usual $4.40/Mcf mark” in early trading July 27.

“Despite some turbulence, prompted by developments in the US deficit and debt ceiling situation as well as news of rising US stockpiles, crude oil prices ended [July 26] largely unchanged,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “A lot of effort is still being spent trying to recreate a momentum trade in West Texas Intermediate above $100/bbl to attract the retail investors with a good story when the headline of a debt extension finally makes a print. WTI tested $100/bbl before the [July 26] open, failed, suffered a sharp correction, and then tested again $100/bbl, this time successfully. However, there were not many stops placed above $100/bbl…and despite all the efforts WTI did not manage to maintain the $100/bbl line for the closing print. Crude oil, if it is still finding some strong support on dips, is still lacking follow-through buying.”

In other economic news, Jakob noted US new home sales were slightly lower than expected and still not showing any major improvement; the Richmond, Va., Federal Reserve Bank’s report was worse than expected and showing a contraction; but the conference board consumer confidence index was better than expected.

Meanwhile, Venezuela announced it has lowered its average 2010 production costs to $5.50/bbl from $6.30/bbl the previous year. “They of course find the current world market prices satisfactory. The Organization of Petroleum Exporting Countries as a whole had a $205 billion current account surplus in 2010 compared to $114 billion in 2009. And 2011 should be even better,” said Jakob.

US inventories
The Energy Information Administration said July 27 commercial US crude inventories increased 2.3 million bbl to 354 million bbl in the week ended July 22, the reverse of the Wall Street consensus for a 2 million bbl draw. Gasoline stocks rose 1 million bbl to 213.5 million bbl, outstripping analysts’ expectations of a 400,000 bbl build. Both finished gasoline and blending components increased during the week. Distillate fuel inventories jumped by 3.4 million bbl to 151.8 million bbl in that period, more than double market projections of a 1.6 million bbl gain.

Earlier the American Petroleum Institute reported a 3.96 million bbl increase in crude stocks—“the largest gain in 3 months,” said Ground—to 358.2 million bbl last week. API also reported gasoline inventories down 639,000 bbl to 209.7 million bbl, but distillate stocks up 2.9 million bbl to 149.3 million bbl.

EIA said imports of crude into the US increased 497,000 b/d to 9.8 million b/d in the latest week. In the 4 weeks through July 22, crude imports averaged 9.5 million b/d, down 447,000 b/d from the comparable period in 2010. Gasoline imports last week averaged 662,000 b/d; distillate fuel imports averaged 161,000 b/d.

Input of crude into US refineries dropped 261,000 b/d to 15.4 million b/d last week with units operating at 88.3% capacity. Gasoline production decreased to 9.2 million b/d. Distillate fuel production decreased to 4.6 million b/d.

Energy prices
The September contract for benchmark US light, sweet crudes traded as high as $100.62/bbl July 26 on the New York Mercantile Exchange before closing at $99.59/bbl, up 39¢ for the day. The October contract climbed 41¢ to close at $100.01/bbl. On the US spot market, WTI at Cushing, Okla., was up 69¢ to match the front-month futures price of $99.59 bbl.

Heating oil for August delivery inched up 0.56¢ to $3.11/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month gained 2.72¢ to $3.15/gal.

The August contract for natural gas dipped 1.6¢ to $4.37/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 4.2¢ to $4.42/MMbtu.

In London, the September IPE contract for North Sea Brent increased 34¢ to $118.28/bbl. Gas oil for August lost 25¢ to $978.50/tonne.

The average price for OPEC’s basket of 12 benchmark crudes was up 32¢ to $113.65/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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