MARKET WATCH: Crude oil, natural gas prices retreat

Crude oil and natural gas prices dropped Aug. 24 in the New York market despite a mixed but bullish government report on US oil inventories.

The Energy Information Administration reported an unexpected draw in US commercial crude stocks in the week ended Aug. 19, “made even more bullish by the fact that it included another sizable release of barrels out of the US Strategic Petroleum Reserve,” said analysts in the Houston office of Raymond James & Associates Inc. “Specifically, commercial crude stocks fell 2.2 million bbl (7 million bbl if you back out the SPR release) vs. a consensus call for a build of 1.8 million bbl.” However, crude inventories at the key transitional point in Cushing, Okla., remained flat.

The EIA report “was negative on the product side, with gasoline and distillates both posting week-over-week builds,” Raymond James analysts said. “Total product demand declined for the second week in a row (down 0.9%) and remains modestly lower on a year-over-year basis. Turning to refining, utilization rose to 90.3% (matching its high) last week from 89.1%. The mixed inventories report had a negligible effect on trading.”

US inventories

The EIA said commercial US crude inventories dropped 2.2 million bbl to 351.8 million bbl in the week ended Aug. 19, yet remained above average for that time of year. Gasoline inventories increased 1.4 million bbl to 211.4 million bbl vs. analysts’ expectations of a 1 million bbl decline. EIA reported distillate fuel inventories rose 1.7 million bbl to 155.7 million bbl, compared with an expected 1 million bbl draw (OGJ Online, Aug. 24, 2011).

EIA subsequently reported the injection of 73 bcf of natural gas into US underground storage last week, slightly below the Wall Street consensus for an input of 74 bcf. That brought working gas in storage past 2.9 tcf, down 140 bcf from a year ago and 55 bcf below the 5-year average.

Government data showed a total stock build of 4 million bbl for a second consecutive week. “Since the start of the third quarter, the US has built 22 million bbl of petroleum stocks,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “Total stocks are below the historical high levels of a year ago, but more or less at par to the levels of 2009.”

He said, “Total US oil implied demand on 4-week average is up 0.8% vs. last year and implied demand for clean petroleum products is up 1.1% vs. last year, with strong implied demand for distillates (up 8.3%) offsetting poor implied demand for gasoline (down 2.4%).”

Jakob pointed out, “Next week (Sept. 5) is the long Labor Day weekend, and this will actually be the Labor Day weekend with the highest gasoline prices ever (in 2008, prices were more in a declining trend going into the traditional end-of-the-gasoline-season weekend).” Despite increased implied demand, US stocks of distillates continue to build, adding 1.7 million bbl stocks during the week and 13.6 million bbl since the start of the third quarter, he said.

“Product production levels are on the high side and refinery runs are running at a higher rate than the last 2 years,” said Jakob. “The high refinery runs on the US Gulf Coast (almost a record high last week) have contributed in showing a lower than we expected stock build on the coast. The Gulf Coast had a marginal crude oil stock build during the week, but overall levels are more or less at par to the levels of a year ago. There are still about 10 million SPR bbl to be delivered to commercial stocks.”

Waiting for Bernanke

Meanwhile, Raymond James analysts speculated, “It looks like [Federal Reserve Bank Chairman] Ben Bernanke has lost his Midas touch. After gold's meteoric rise to over $1,900/troy oz, the metal [on Aug. 24] took its worst hit in over 3 years, and continues downward this morning on speculation of whether or not QE3 [a third round of quantitative easing] will be announced at [the Aug. 26 meeting at Jackson Hole, Wyo.,] with central bankers.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “We are not convinced by the return of risk-taking appetite during the last 2 days. For now, oil will continue to follow the broad market moves and await Bernanke’s speech.

Jakob also noted, “Only one more day to go before Bernanke’s Jackson Hole speech, but the expectations are being played down. This is not a Federal Open Market Committee meeting, and if last year Bernanke used the meeting to warn about QE2, he has no obligation at all to spell the Fed’s next phase of action at the Jackson Hole meeting. Instead, there is some increasing chatter that he could just talk about the need for fiscal policies to revive growth and leave out giving strong clues about monetary policies. If that was the case, some investors could be disappointed.”

He added, “Gold made the headlines again yesterday, but this time due to very strong profit taking (profit tanking might be a better word), and the CME announced after the close that it would increase again the margins to hold gold futures as of today. The gold Exchange Traded Fund has been suffering heavy outflows over the last 2 days.”

Energy prices

The October contract for benchmark US sweet, light crudes declined 28¢ to $85.16/bbl Aug. 24 on the New York Mercantile Exchange. The November contract dipped 21¢ to $85.53/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., matched the closing price for the front-month NYMEX contract at $85.16/bbl, down 13¢ for the day.

Heating oil for September delivery increased 1.82¢ to $2.96/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month inched up 0.18¢ but closed virtually unchanged at a rounded $2.88/gal.

The September contract for natural gas dropped 7.1¢ to $3.92/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 4.7¢ to $4.07/MMbtu.

In London, the October IPE contract for North Sea Brent advanced 84¢ to $110.15/bbl. Gas oil for September was up $11.50 to $942.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes rose 62¢ to $106.53/bbl.

Contact Sam Fletcher at

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