MARKET WATCH: Crude oil futures prices increase slightly

Crude oil futures prices were up slightly at the close of markets on Sept. 29, but petroleum products and natural gas prices continued to retreat.

Germany’s anticipated ratification of the European Financial Stability Facility (EFSF) bailout fund eased market concerns and triggered an early rally in the Dow Jones Industrial Average. However, the DJIA whittled down those gains through the rest of the session to a 1.3% increase for the day.

“Taking a cue from the broader market, crude ended the day up 1.1% [on the New York market]. Natural gas continued its painful downward grind after another bearish weekly Energy Information Administration report, and closed modestly lower,” said analysts in the Houston office of Raymond James & Associates Inc. The Oil Service Index and SIG Oil Exploration & Production Index finished relatively flat.

US officials later revised upward earlier reports of second-quarter growth of gross domestic product to 1.3%, from 1%, and reported new filings for jobless benefits in the latest week fell below 400,000. On Sept. 30, the Department of Commerce said consumer spending inched up just 0.2% in August following a revised 0.7% increase in July. However, US incomes dipped 0.1% in what was described as “the poorest showing since a similar 0.1% drop in October 2009.” The savings rate among US residents dropped to the lowest level since late 2009.

In a speech earlier this week, Federal Reserve Chairman Ben S. Bernanke said the US is facing a crisis with an unemployment rate at or above 9% for many months. He called for fiscal discipline to help the economic recovery.

“Bernanke says the Fed is prepared to ‘act,’ said Raymond James analysts. But his actions are getting “pretty bad reviews at this point,” they said. “After two rounds of quantitative easing, billions of ‘where did the money actually go’ bailouts, and now Operation Twist [selling $400 billion worth of treasury notes that mature within a few years and buying treasury notes that will mature in 6-30 years to encourage long-term business loans], we're just hoping the Fed doesn't break a leg when they take the stage at the next Fed meeting,” Raymond James analysts said.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “Product cracks generally moved higher, but at a slower pace, in the wake of the major accident at Shell’s 500,000 b/d refinery in Singapore. Physical crude differentials over dated Brent were largely unchanged after steep falls during the past 2 weeks. The term structures for both West Texas Intermediate and North Sea Brent were firmer yesterday.”

Energy outlook

US oil market data overall “is not pretty,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “Demand for all products was revised lower by 442,000 b/d and is down 4% vs. last year. Demand for oil products excluding LPG is down 850,000 b/d vs. last year (4.9%) and is the lowest number for a month of July in 16 years. US oil demand in July was lower than in 2009 and even the year-to-date number (January-July) is lower than 2009. US oil demand in July was 2.2 million b/d lower than in July 2007, while field production is higher by 1 million b/d. That makes the US July internal oil supply and demand 3.2 million b/d better balanced than in 2007. Over the same timeframe the Chinese supply and demand has been less balanced by 1.3 million b/d, i.e. a pace 2.5 times lower than the US improvement,” he said.

EIA released its natural gas supply data for July, indicating volume from the Lower 48 was “flattish (up 100 MMcfd) sequentially, but still up a whopping 5.3 bcfd year-over-year.” Raymond James analysts said, “Notably, the Gulf of Mexico continues to bleed, down a sizeable 300 MMcfd sequentially and 1.1 bcfd year-over-year, implying onshore growth of 400 MMcfd sequentially. Despite the sluggish onshore growth from April through July, we still believe gas supply growth should pick up in the back half of this year and maintain our view of another 4 bcfd in growth for 2012,” they said.

“US refinery crude oil runs are 100,000 b/d higher than last year and unchanged vs. July 2007 as the US is turning more and more into a net exporter of petroleum,” Jakob reported. “US net petroleum exports have reached a new record high at 500,000 b/d. In July 2007, the US was a net importer of 2.3 million b/d of oil products; today it is a net exporter of 500,000 b/d, a net difference of 2.8 million b/d.”

Therefore, he said, “US refineries are running for exports, not for the US internal oil demand, and those refineries that are ill-equipped for exports or not positioned to profit from the WTI discount are forced to shut down. The US East Coast will see 700,000 b/d of refinery closures (Conoco and Sunoco) over the next 6 months, and additional closures should not be discounted. The push for exports is, however, making the US refining industry much more dependent on foreign markets. If a global double-dip [recession] or more competition from Asian refineries start to attack the markets for US oil product exports, then the risk will be to see further refinery shut-downs in the US.”

Energy prices

The November contract for benchmark US light, sweet crudes increased 93¢ to $82.14/bbl Sept. 29 on the New York Mercantile Exchange. The December contract advanced 88¢ to $82.14/bbl. On the US spot market, WTI at Cushing, Okla., was up 93¢ to $82.14/bbl.

Heating oil for October delivery dipped just 0.03¢ and closed essentially unchanged at a rounded $2.82/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 3.15¢ to $2.62/gal.

The November contract for natural gas continued its downward trend, down 5.2¢ to $3.75/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 11.1¢ to $3.77/MMbtu.

In London, the November IPE contract for North Sea Brent inched up 14¢ to $103.95/bbl. Gas oil for October dropped $9.25 to $898.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost $1.23 to $103.11/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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