MARKET WATCH: Iran sword-rattling raises energy prices

Energy prices shot up July 3, wiping out losses from the previous session, on reports that Iran’s National Security and Foreign Policy Committee drafted a bill to ban oil shipments through the Strait of Hormuz to countries supporting sanctions against that nation.

The front-month crude contract jumped more than 4% in the New York market. “With the strength in oil prices, the Oil Service Index and the SIG Oil Exploration & Production Index gained 4% and 3.7%, respectively,” said analysts in the Houston office of Raymond James & Associates Inc.

The market was quiet July 4 with the New York Mercantile Exchange closed for the US Independence Day holiday. James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “Brent was a touch softer on very low volumes” after climbing above $100/bbl in the previous session. Time spreads of Brent and price differentials for North Sea physical cargoes continued to increase, setting the stage for further strengthening of the oil market.

Crude prices climbed in early trading July 5 after the Norwegian Oil Industry Association (OLF) announced a lock-out of offshore workers effective midnight July 9 after negotiations between labor and management failed to end a strike that began last week. Statoil ASA, Norway's largest oil company, said it plans a controlled shutdown of 1.2 million b/d of oil equivalent. Officials said it would take as much as 4 days to shut down all production on the Norwegian Continental Shelf, depending on characteristics and complexity of various fields.

Meanwhile, China cut its benchmark lending rate for the second time in a month, and the European Central Bank reduced its key interest rate to a record low of 0.75%. The Bank of England also took steps to stimulate the British economy. These factors buoyed oil prices in early trading July 5.

US inventories

The Energy Information Administration said July 5 commercial US crude inventories fell 4.3 million bbl to 382.9 million bbl in the week ended June 29, far surpassing the Wall Street consensus for a 2.3 million bbl draw. Gasoline stocks increased 200,000 bbl to 205 million bbl, short of analysts’ expectation of a 1 million bbl gain. Finished gasoline inventories increased while blending components stocks decreased. Distillate fuel inventories dropped 1.1 million bbl to 117.8 million bbl last week, below average for this time of year. Traders were expecting a 1 million bbl addition.

Imports of crude into the US fell 344,000 b/d to 8.8 million b/d last week. In the 4 weeks through June 29, crude imports averaged 9.1 million b/d, down 16,000 b/d from the comparable period a year ago. Gasoline imports last week averaged 823,000 b/d, and distillate fuel imports averaged 81,000 b/d.

The input of crude into US refineries declined 14,000 b/d to 15.6 million b/d last week with units operating at 92% of capacity. Gasoline production increased to 9.4 million b/d. Distillate fuel production rose to 4.7 million b/d.

Energy prices

The August contract for benchmark US light, sweet crudes jumped $3.91 to $87.66/bbl July 3 on NYMEX. The September contract climbed $3.88 to $88.03/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $3.91 to $87.66/bbl.

Heating oil for August delivery rose 8.26¢ to $2.76/gal on NYMEX. Reformulated stock for oxygenate blending for the same month gained 9.9¢ to $2.72/gal.

The August natural gas contract advanced 7.5¢ to $2.90/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 4.6¢ to $2.80/MMbtu.

In London, the August IPE contract for North Sea Brent was up $3.34 to $100.68/bbl on July 3. Gas oil for July escalated $31.75 to $880.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased to $97.40/bbl on July 4 from $96.53/bbl on July 3.

Contact Sam Fletcher at samf@ogjonline.com.

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