MARKET WATCH: Energy prices retreat among European economic worries

Energy prices generally fell Aug. 16 as markets failed to carry over gains from the previous session.

“Instead, domestic markets suffered renewed anxiety over the Old World as the European Union released lower-than-expected gross domestic product figures,” said analysts in the Houston office of Raymond James & Associates Inc. “In a joint speech, France's President Nicolas Sarkozy and Germany's Chancellor Angela Merkel proposed a eurozone solution [for] the region's debt problems, but the speech failed to calm market fears.” The Standard & Poor’s 500 index “erased nearly 1% from [Aug. 16] gains due to Europe's woes and weak retail sales data. Oil and natural gas followed the broader market sentiment of a global economic slowdown, falling 1% and 2%, respectively.

Broader market futures and crude were up modestly in early trading Aug. 17, while natural gas continued to decline.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “The EU-2 [Germany and France] had their meeting yesterday, and the other 15 EU countries must have been impatient to hear what was apparently decided for them. Anyway, the ‘emergency’ meeting did not come up with any emergency measures, the EU-2 leaders expressed their strong defense of the euro but could not agree to the concept of euro bonds [or] increased funding for the Emergency European Fund.”

He said, “What we got instead is a project to have all European nations write the debt golden rule in their constitution (good luck with that) and a project to force Ireland to increase its corporate taxes (through European harmonization). In our opinion, the markets will get tired of those European meetings that come up with not much than another round of spin.”

Meanwhile, Jakob said, “The real European economy shows a GDP growth of 0.2% in the second quarter vs. the first quarter. Last year in for the same period, Europe had a GDP growth of 1%. Germany is now at 0.1% vs. 2.1% a year ago. The UK is [up] 0.2% vs. 1.1% last year, and France is flat vs. 0.5% [gain a year ago].”

He noted, “The US July Industrial Production [up] 0.9% in July was better than expected on the back of strong automobile production (now they only have to sell those cars while consumer sentiment is falling), but the housing starts continue to show no improvement.”

Other Standard Bank analysts observed, “The monetary base in the US continues to grow,” with the St. Louis Federal Reserve Bank money supply increased by 1.3% since the start of August. The money supply has increased 7% so far this year and is up 18% since October 2008 (just after the Lehman’s collapse).

They said, “Clearly, despite no further quantitative easing by the Fed, liquidity as defined by zero maturity money (or money immediately available for spending) continues to grow.” The St Louis Fed money supply numbers are often used as a proxy for money supply in the broader US economy.

Standard Bank analysts reported, “Product cracks and refining margins weakened further yesterday.” Oil continued to track closely the broad market, such as the S&P 500 index, closely.

US inventories

The Energy Information Administration said Aug. 17 commercial US crude inventories climbed by 4.2 million bbl to 354 million bbl in the week ended Aug. 12, with recent transfer of oil from the US Strategic Petroleum Reserve to commercial storage on the Gulf Coast. Those stocks are still above average for this time of year, with the latest input out of line with the Wall Street consensus for a draw of 500,000/bbl. Gasoline stocks dropped 3.5 million bbl to 210.1 million bbl in the same period, well beyond Wall Street’s expectation of a 1.2 million bbl decrease. Both finished gasoline and blending components fell, said EIA officials. Distillate fuel inventories increased 2.4 million bbl to 154 million bbl, while analysts expected a smaller gain of 600,000 bbl.

The American Petroleum Institute earlier reported an increase of 1.7 million bbl to 350.4 million bbl of crude stocks. Based on a different calculation method, the API said gasoline fell 5.4 million bbl to 205.8 million bbl while distillate dropped 1.3 million bbl to 145.6 million bbl.

EIA reported the import of crude into the US increased last week by 185,000 b/d to 9.3 million b/d. That’s the same amount US crude imports averaged in the 4 weeks ended Aug.12, down by 606,000 b/d from the comparable period in 2010. Gasoline imports last week averaged 677,000 b/d, while distillate fuel imports averaged 97,000 b/d.

The input of crude into US refineries fell 205,000 b/d to 15.4 million b/d with units operating at 89.1% of capacity last week. Gasoline production decreased to 9.3 million b/d, while distillate fuel production increased to 4.6 million b/d.

Energy prices

The September contract for benchmark US light, sweet crudes dropped $1.23 to $86.65/bbl Aug. 16 on the New York Mercantile Exchange. The October contract fell $1.29 to $86.85/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.23 to $86.65/bbl.

Heating oil for September delivery dipped 1.15¢ to $2.93/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 2.07¢ to $2.85/gal.

The September contract for natural gas lost 9.2¢ to $3.93/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., decreased 4.4¢ to $3.99/MMbtu.

In London, the September IPE contract for North Sea Brent retreated 44¢ to $109.47/bbl. Gas oil for September gained $4.75, however, to $927.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 64¢ to $105.42/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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