MARKET WATCH: Energy prices mixed in uncertain markets

Not pacified by the European bailout of Spain’s banks, markets were mixed June 12 with front-month crude increasing 1% in the New York futures market and North Sea Brent declining 1% in London.

“Investors made it clear that the €100 billion bank bailout for Spain over the weekend was not particularly calming, with Spanish and Italian 10-year yields hitting record highs,” said analysts in the Houston office of Raymond James & Associates Inc. “The US broader markets picked up some steam yesterday, with the Standard & Poor’s 500 Index gaining 1.2% on renewed hopes of stimulus from the Federal Reserve Bank.” They also reported the price of natural gas increased slightly “on hopes of a hot summer.”

The price divergence between West Texas Intermediate and Brent apparently was driven by the unwinding or rolling forward of spread positions ahead of the July Brent expiry on June 14, said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Oil products also weakened but to a lesser extent than Brent, maintaining relatively strong product cracks and refining margins. Meanwhile, Brent time spreads were sold across the curve and eliminated much of the backwardation structure at the front-end of the Brent curve. However, some recovery took place in Brent time spreads this morning as North Sea crude continued to experience delays,” Zhang reported.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “It is not the first time in recent months that Brent has tested a flat structure on the front spread, and each time it was followed by more shipments of Forties crude to South Korea. But the difference this time is the significant discount of other light, sweet crude oils in the Atlantic Basin, which could make it more and more difficult for North Europe to remain a South Korean island.”

Oil ministers of the member states of the Organization of Petroleum Exporting Countries will meet June 14 in Vienna in a period of increased supply and reduced demand for oil. Therefore, Zhang said, “We don’t see any possibility of an immediate increase in OPEC production quotas. Meanwhile, OPEC crude basket prices have fallen below $95/bbl, which again will make any calls to increase production very difficult.”

Oil and equity markets were down in early trading June 13 after the US Department of Commerce reported US consumer spending was down 0.2% in May following an identical decline in April.

US inventories

The Energy Information Administration said June 13 commercial US inventories of crude declined by 200,000 bbl to 384.4 million bbl in the week ended June 8. That is well below Wall Street’s consensus for a draw of 1.5 million bbl, leaving crude stocks still above average for this time of year. Gasoline inventories decreased 1.7 million bbl to 201.8 million bbl, below average supply for this seasonal period and counter to analysts’ predictions of an increase of 1.4 million bbl. Finished gasoline inventories increased while blending components stocks decreased last week. Distillate fuel inventories dipped 100,000 bbl to 120 million bbl; the market’s outlook was for an increase of 1.2 million bbl.

Imports of crude into the US rose 160,000 b/d to 9.1 million b/d last week. In the 4 weeks through June 8, crude imports averaged 8.9 million b/d, down 69,000 b/d from the comparable period a year ago. Gasoline imports last week averaged 684,000 b/d, and distillate fuel imports averaged 65,000 b/d.

The input of crude into US refineries was up last week by 152,000 b/d to an average 15.6 million b/d with units operating at 92% of capacity. Gasoline production increased to 9.6 million b/d. Distillate fuel production increased to 4.7 million b/d.

Energy prices

The July and August contracts for benchmark US light, sweet crudes regained 62¢ each to $83.32/bbl and $83.62/bbl, respectively, June 12 on the New York Mercantile Exchange. On the US spot market, WTI at Cushing, Okla., remained abreast of the front-month futures contract, also up 62¢ to $83.32/bbl.

Heating oil for July delivery continued its slide, down 1.42¢ to $2.62/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.64¢ to $2.65/gal.

The July natural gas contract recouped 1.44¢ to $2.23/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 3.4¢ to $2.19/MMbtu.

In London, the July IPE contract for North Sea Brent dropped 86¢ to $97.14/bbl. Gas oil for June was unchanged at $851.25/tonne.

The average price for OPEC’s basket of 12 benchmark crudes fell $2.35 to $94.99/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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