MARKET WATCH: Oil prices increase; natural gas slips lower

Oil prices turned around Aug. 1 on bullish reports of US inventories with crude regaining much of its losses over the previous two sessions, but natural gas continued to slip lower.

“Crude settled with a 1% gain [in the New York futures market] after a bullish inventories report saw a draw of 9.7 million bbl in crude, gasoline, and distillate inventories compared [with] the consensus forecast for a build of 900,000 bbl,” said Raymond James & Associates analysts in Houston. “Brent also gained 1%, and natural gas fell 2%.”

Meanwhile, the Federal Open Market Committee of the Federal Reserve Bank took no action at the close of its 2-day meeting but reiterated it is ready to react if economic conditions deteriorate further.

The FOMC’s inaction left commodity markets, especially precious metals, “somewhat unsatisfied,” resulting in a sell-off, said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

“The reaction was not disastrous though, as markets did not have too much vested in decisive action being announced yesterday,” Ground said. “Even prior to yesterday’s meeting, expectations of easing appeared to have been shifted to the September meeting.”

Traders also appeared to shrug off Aug. 2 reassurances by European Central Bank President Mario Draghi that the bank is prepared to intervene in the Euro-Zone bond market to drive down high borrowing rates among members. That vow initially boosted markets last week, but stock prices and the euro declined in Aug. 2 early trading following Draghi’s comments.

US inventories

The Energy Information Administration reported Aug. 2 the injection of 28 bcf of natural gas into US underground storage for the week ended July 27, up from Wall Street’s consensus for an increase of 21 bcf. Working gas in storage totals 3.217 tcf, up 472 bcf from the comparable period a year ago and 407 Bcf above the 5-year average.

EIA earlier said commercial US crude inventories fell 6.5 million bbl to 373.6 million bbl for the week ended July 27, far beyond Wall Street’s consensus for a reduction of 1 million bbl.

Crude stocks remain above average for this time of year. Gasoline inventories dropped 2.2 million bbl to 207.9 million bbl last week, opposite analysts’ expectations of an 800,000 bbl gain. Both finished gasoline and blending components decreased. Distillate fuel stocks lost 1 million bbl to 124.3 bbl last week, dashing the market’s projection of a 1.1 million increase (OGJ Online, Aug. 1 2012).

“Unexpected draws in distillates and gasoline combined with a much larger-than-expected draw in crude,” said RJA analysts. “The draws were driven by a 900,000 b/d drop in product imports and a 1.2 million b/d fall in crude imports. Demand for petroleum products was flat and thereby did not contribute meaningfully to the draw.” Refinery utilization was flat at 93%, staying at its highest level since 2007. Notably, Cushing, Okla., inventories fell by 1.4 million bbl.

Energy prices

The September contract for benchmark US sweet, light crudes regained 85¢ to $88.91/bbl Aug. 1 on the New York Mercantile Exchange. The October contract recouped 83¢ to $89.17/bbl. On the US spot market, West Texas Intermediate at Cushing was up 85¢ to $88.91/bbl.

Heating oil for September delivery increased 1.08¢ to $2.86/gal on NYMEX. Reformulated stock for oxygenate blending for the same month climbed 5.99¢ to $2.83/gal.

The September natural gas contract dropped 3.8¢ to $3.17/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., declined 2.1¢ to $3.20/MMbtu.

In London, the September IPE contract for North Sea Brent rose $1.04 to $105.96/bbl. Gas oil for August was up $3.25 to $902.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained 32¢ to $102.54/bbl.

Contact Sam Fletcher at samf@ogjonline.com

 

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