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MARKET WATCH: New York oil price retreats in mixed market

The energy market was mixed July 5 with the front-month crude contract dropping modestly in the New York market while North Sea Brent again climbed above $100/bbl in London.

“Crude opened the day strong, buoyed by reports of Norway's worsening oil strike and a bullish inventories draw reported by the Department of Energy,” said analysts in the Houston office of Raymond James & Associates Inc. “However, a stronger US dollar overshadowed the other news, pushing crude slightly into negative territory. Natural gas was relatively flat, remaining within striking distance of the $3[/MMbtu] mark amid the intense US heat wave.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “The oil market had a mixed day wrestling with supply disruptions and the uncertain macroeconomic climate. Ongoing strikes at Norwegian oil works have shut off more than 1 million b/d of oil production. Adding to this, US commercial oil inventories fell much more than expected. Meanwhile, central banks from China to Europe resolved to cut interest rates amid growing signs of economic woes. Net for the day, Brent and oil products made small gains, while West Texas Intermediate weakened slightly as crude inventories at Cushing, Okla., the delivery point for WTI contracts, rose further. In the options market, implied volatility rose slightly from [July 3], accounting for a small fall in oil prices on July 4 when the US market was shut for Independence Day.”

Both WTI and Brent prices were down in early trading July 6 on indications the world economy is still floundering 3 years after the recession was pronounced ended. US employees reported the creation of only 80,000 new jobs in June, the third consecutive month of weak hiring. The US Department of Labor reported the US unemployment rate remained at 8.2%.

US inventories

The Energy Information Administration reported the injection of 39 bcf of natural gas into US underground storage in the week ended June 29, below Wall Street’s consensus for an increase of 43 bcf. The latest addition increased working gas in storage to 3.102 tcf, up 602 bcf from the year-ago level and 537 bcf above the 5-year average.

EIA earlier said commercial US crude inventories fell 4.3 million bbl to 382.9 million bbl in that same week, 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. 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 (OGJ Online, July 5, 2012).

Combining crude, gasoline, and distillates, inventories fell 5.2 million bbl last week, compared with the consensus for a total draw of 300,000 bbl. “Total petroleum demand increased for the second week in a row and was up 2.8% week-over-week,” Raymond James analysts said. “Combining supply and demand, total days of supply fell 1.6 days week-over-week and are 1.8 days below year-ago levels. Cushing inventories rose 200,000 bbl and are 10.6 million bbl above levels from this time last year.”

Zhang noted, “US crude imports fell by 344,000 b/d, while refinery run rates declined by 101,000 b/d, resulting in a sizable draw in total crude inventory. Domestic crude production was also lower than the previous week, as a result of [Tropical Storm Debby] hurricane experienced in the Gulf of Mexico last week. We expect crude imports and domestic production to rise again this week. Meanwhile, implied demand for gasoline and distillates rose further, helped by lower retail prices following recent price slides.”

Energy prices

The August contract for benchmark US light, sweet crudes declined 44¢ to $87.22/bbl July 5 on the New York Mercantile Exchange. The September contract decreased 46¢ to 87.57/bbl. On the US spot market, WTI at Cushing was down 44¢ to $87.22/bbl.

Heating oil for August delivery, however, inched up 0.99¢ to $2.77/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 4.19¢ to $2.76/gal.

The August natural gas contract advanced 4.6¢ to $2.95/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 11.3¢ to $2.91/MMbtu.

In London, the August IPE contract for North Sea Brent was up 93¢ to $100.70/bbl. Gas oil for July climbed $12.25 to $889/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes rose $1.03 to $98.43/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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