MARKET WATCH: Bullish inventory report lifts oil prices

Crude oil futures prices increased 1% in the New York market June 27 following a bullish government report on oil inventories and positive economic indicators in durable goods and housing.

The front-month natural gas contract, however, was up only 0.3% before dropping more than 3% in early trading June 28 after a larger-than-expected inventory increase last week.

The US Department of Commerce reported the US economy expanded at a rate of 1.9%/year in this year’s first quarter and is expected to repeat that performance in the second quarter. Consumer spending slowed, however, up 2.5% compared with the 2.7% growth earlier projected.

The US Department of Labor, meanwhile, reported 386,000 initial requests for unemployment benefits last week, down by 17,000 from the previous week. However, employers added only 73,000 jobs/month in April and May, down sharply from the average of 226,000 new jobs in the first quarter of 2012. A private survey by the Conference Board showed consumer confidence fell in June for the fourth consecutive month. US manufacturing also weakened in May as auto manufacturers reduced production for the first time in 6 months.

Meanwhile, in its final statistics update on Tropical Storm Debby, the US Bureau of Safety and Environmental Enforcement said June 27 offshore crews had returned to all of the rigs and all but 10 production platforms in the Gulf of Mexico that were evacuated during the storm’s approach. They said 3.21% of daily oil production and 3.64% of daily gas production from the gulf remained shut in.

US inventories

The Energy Information Administration reported the injection of 57 bcf of natural gas into US underground storage during the week ended June 22, surpassing the Wall Street consensus for a 53 bcf increase. The latest addition raised working gas in storage above 3.06 tcf, up 653 bcf from year-ago level and 613 bcf above the 5-year average.

EIA earlier said commercial US crude inventories declined 100,000 bbl to 387.2 million bbl in the same week far short of the Wall Street consensus for a 1.3 million bbl draw. US crude stocks are still above average for this time of year, however. Gasoline inventories increased 2.1 million bbl to 204.8 million bbl last week, exceeding analysts’ expectations of a 1 million bbl advance. Both finished gasoline and blending components were up for the week. Distillate fuel stocks fell 2.3 million bbl to 118.9 million bbl, below average for this period and opposite market anticipation of a 1.2 million bbl gain (OGJ Online, June 27, 2012).

In Houston, analysts with Raymond James & Associates Inc. said, “Yesterday's petroleum inventories update was bullish relative to consensus driven by a sizable draw in distillate inventories as compared to consensus expectations for a build. Gasoline inventories posted a notable build despite a 1.8% increase in demand week-over-week. Overall petroleum product demand was up 2.5%. It is worth noting that refinery utilization increased to 92.6% from 91.9% the previous week. Cushing, Okla., inventories decreased (down 300,000 bbl) for the second time in 3 weeks following the Seaway pipeline reversal. In aggregate, total days of supply decreased 1.2 days and are 1.3 days below year-ago levels.”

Energy prices

The August contract for benchmark US sweet, light crudes climbed 85¢ to $80.21/bbl June 27 on the New York Mercantile Exchange. The July contract gained 84¢ to $80.61/bbl. On the US spot market, West Texas Intermediate at Cushing was up 85¢ to $80.21/bbl.

Heating oil for July delivery increased 1.72¢ to $2.59/gal on NYMEX. Reformulated stock for oxygenate blending for the same month, however, fell 2.47¢ to $2.62/gal.

The July natural gas contract inched up 0.7¢ to $2.77/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 18.1¢ to $2.88/MMbtu.

In London, the August IPE contract for North Sea Brent increased 48¢ to $93.50/bbl. Gas oil for July was up $10.25 to $829/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes advanced 78¢ to $90.91/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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