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MARKET WATCH: Energy prices rise as Middle East turmoil escalates

Energy prices increased moderately July 18 with front-month crude up 0.7% in the New York market despite a smaller-than-expected decline in US inventory.

The “meltdown” of President Bashar Assad’s regime in Syria “brings geopolitical risk back to the forefront” of market concerns, said analysts in the Houston office of Raymond James & Associates Inc. A rebel attack July 18 in Damascus killed three senior government officials, wounded others, and accelerated flight of administration members out of the country. The Syrian military’s inability to cope with lightly armed rebels in the nation’s capital indicates Assad’s power is weakening.

“Syria itself has virtually zero relevance as an oil producer,” Raymond James analysts acknowledged. However, they said, “Any regional crisis could lead to production disruptions, more widely than last year's war in Libya.”

Meanwhile, natural gas jumped 6% in New York. The Standard & Poor's 500 Index rose to a 2½-month high on positive earnings reports and improvement in the housing market. The SIG Oil Exploration & Production Index and the Oil Service Index modestly outperformed the broader markets.

US inventories

The Energy Information Administration reported the injection of 28 bcf of natural gas into US underground storage in the week ended July 13, below the Wall Street consensus for 33 bcf. That increased working gas in storage to 3.163 tcf, up 509 bcf from a year ago and 470 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories declined 800,000 bbl to 377.4 million bbl last week, short of Wall Street’s consensus for a 1.3 million bbl drop, with stocks remaining above average for the time of year. Gasoline inventories fell 1.8 million bbl to 205.9 million bbl last week, compared with analysts’ expectations of a 1.2 million bbl build. Both finished gasoline and blending components stocks were down. Distillate fuel inventories increased 2.6 million bbl to 123.5 million bbl, twice the 1.3 million bbl gain the market projected (OGJ Online, July 18, 2012).

“Combining crude, gasoline, and distillates, inventories were flat this week compared [with] the consensus forecast for a build of 1.2 million bbl,” Raymond James analysts said. “Product imports fell by 20% week-over-week, contributing to the decrease in gasoline inventories. Petroleum demand ticked up by 0.3% week-over-week. After reaching its highest level since 2007 the previous week, refinery utilization pulled back to where it was 2 weeks ago, declining from 92.7% to 92%.” They noted crude inventories in Cushing, Okla., fell for the second consecutive week, down 500,000 bbl in the latest count.

Walter de Wet at Standard New York Securities Inc., the Standard Bank Group, said, “Despite the decline in gasoline inventory, we do note that gasoline inventories in terms of days of supply are starting to see a disturbing upward creep towards the upper end of their 5-year range. So while the market might take heart from declining crude oil stocks, product inventory levels are something to watch because if these numbers don’t improve over the US driving season, it could spell weaker demand for crude down the line.”

Energy prices

The August contract for benchmark US sweet, light crudes climbed 65¢ to $89.87/bbl July 18 on the New York Mercantile Exchange. The September contract rose 63¢ to $90.17/bbl. On the US spot market, West Texas Intermediate at Cushing was up 65¢ to $89.87/bbl.

Heating oil for August delivery increased 3.54¢ to $2.88/gal on NYMEX. Reformulated stock for oxygenate blending for the same month gained 3.84¢, also closing at a rounded $2.88/gal.

The August natural gas contract escalated 17.7¢ to $2.97/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., regained 3¢ to $2.86/MMbtu.

In London, the September IPE contract for North Sea Brent was up $1.16 to $105.16/bbl. Gas oil for August climbed $11.75 to $906.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 44¢ to $101.73/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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