MARKET WATCH: Crude oil, natural gas prices climb

Energy prices gained with crude oil up 1.2% and natural gas climbing 2.7% Aug. 23 on the New York market in anticipation of another Federal Reserve Bank economic stimulus program that will weaken the US dollar.

In the broader market, the Standard & Poor’s 500 Index jumped 3.4% “on hopes that the Federal Reserve will step in to save the battered economy with a third round of quantitative easing,” said analysts in the Houston office of Raymond James & Associates Inc. “The Oil Service Index and [SIG Oil Exploration & Production Index] EPX traded in kind, shooting up more than 4%.” However, oil futures prices were flat in early trading Aug. 24 “as the market tries to balance the effects of a potential recovery in Libyan oil production and a weakened dollar,” they said.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, noted, “Oil products followed crude higher, leaving product cracks and refining margins largely unchanged.”

The energy market’s “focus for the week” remains on Fed Chairman Ben Bernanke’s speech scheduled Aug. 26 at Jackson Hole, Wyo. “The macroeconomic data continues to deteriorate, but 3 days before Jackson Hole, this is considered to be positive as it increases the faith that Bernanke will hint at a third round of quantitative easing [QE3]. The S&P 500 had therefore a sharp rebound yesterday, and the rebound was broad based across all sectors (Bank of America missing from the party though, as it continues to plunge toward the 2009 lows),” said Olivier Jakob at Petromatrix in Zug, Switzerland.

Zhang said, “It appears that the markets are hanging all the hopes on Bernanke’s speech while brushing other factors aside for now. Consequently, we continue to see choppy moves in the oil market this week, rather than any big directional moves. While we do not see QE3 as a done-deal, our bias is to believe that the Fed is likely to deliver something to keep the market sufficiently supported, at least in the short run.”

Meanwhile, the search by rebels for dictator Moammar Gadhafi continues in Libya, “but after the events of yesterday it is clear that the Gadhafi regime is over,” Jakob said. “The rapidity in the fall of Tripoli has surprised many (including the rebels and the Western governments), but with the fall of Tripoli and more countries now recognizing the Transitional National Council (apart from Venezuela, of course), the [United Nations] sanctions will have to be lifted soon, and then the Western companies can start to come back and assess the work to be done.”

As regimes change in some member nations of the Organization of Petroleum Exporting Countries, Jakob said, “We might also have to revise higher some of the outlooks for future OPEC spare capacity. For today, we have to deal with some lower exports out of Nigeria since Shell declared force majeure on its Bonny Light exports. Force majeure does not necessarily mean a full shut-down, but the cargo delays in Bonny Light will add to the cargo delays in the North Sea.”

US inventories

The Energy Information Administration said Aug. 24 commercial US crude inventories dropped 2.2 million bbl to 351.8 million bbl in the week ended Aug. 19. That was counter to the Wall Street consensus for a 1.8 million bbl increase, yet crude stocks remain above average for this time of year. Gasoline inventories increased 1.4 million bbl to 211.4 million bbl vs. analysts’ expectations of a 1 million bbl decline. Both finished gasoline and blending components stocks increased last week. EIA reported distillate fuel inventories rose 1.7 million bbl to 155.7 million bbl, compared with an expected 1 million bbl draw.

Imports of crude into the US fell 477,000 b/d to 8.8 million b/d last week. In the 4 weeks through Aug. 19, EIA officials said, crude imports averaged 9.1 million b/d, down 546,000 b/d from the comparable period a year ago. Gasoline imports last week averaged 894,000 b/d, while distillate fuel imports averaged 161,000 b/d.

The input of crude into US refineries increased by 244,000 b/d to 15.7 million b/d with units operating at 90.3% capacity last week. Gasoline production increased slightly to 9.3 million b/d while distillate fuel production increased to 4.7 million b/d.

Energy prices

The new front-month October contract for benchmark US light, sweet crudes increased $1.02 to $85.44/bbl Aug. 23 on the New York Mercantile Exchange. The November contract gained $1.05 to $85.74/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., bumped up $1.17 to $85.29/bbl in an effort to coordinate again with the front-month futures market price.

Heating oil for September delivery advanced 3.18¢ to $2.94/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month was up 4.15¢ to $2.88/gal.

The September contract for natural gas jumped 10.4¢ to $3.99/MMbtu, recouping more than it lost in the previous session on NYMEX. On the US spot market, gas at Henry Hub, La., gained 4.3¢ to $4.02/MMbtu.

In London, the October IPE contract for North Sea Brent increased 95¢ to $109.31/bbl. Gas oil for September escalated $15.25 to $930.75/tonne.

The average price for OPEC’s basket of 12 benchmark crudes climbed $2.07 to $105.91/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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