MARKET WATCH: Cautious energy markets rebound with new ECB program

Energy prices were down or at best flat in cautious markets Sept. 5, but crude and the equity markets shot up in early trading Sept. 6 after European Central Bank Pres. Mario Draghi announced a plan to buy an unlimited amount of government bonds to lower borrowing costs for strapped European countries.

The new Outright Market Transactions program likely will boost energy demand. But some analysts said suppressing borrowing costs provides only short term relief without addressing the more important problems of solvency and unsustainable national debts.

Much of Draghi’s program was leaked to the media by ECB sources Sept. 5, raising hopes but not prices in commodity markets. Traders responded enthusiastically after Draghi made it official, but the euro remained flat. Previous price spikes following similar positive pronouncements quickly retreated after buyers had time to digest the details.

Crude prices in the New York futures market also were buoyed by a Labor Department report of fewer new applications for unemployment benefits last week. Initial applications were down by 12,000 to 365,000, indicating fewer layoffs than the previous week. But US unemployment remains high 2 months from the presidential election.

In other news, the US Bureau of Safety and Environmental Enforcement reported workers had not yet returned to 18 of the 596 manned platforms and 1 of the 76 rigs in the Gulf of Mexico as of mid-day Sept. 5. Most offshore rigs and platforms were evacuated ahead of Hurricane Isaac. Government officials said 49.33% of daily oil production and 25.71% of daily gas production in the gulf remain shut-in. Production has been slow to return to pre-storm levels, they said, because of damage to onshore processing facilities.

US inventories

The Energy Information Administration reported Sept. 6 commercial US crude inventories fell 7.4 million bbl to 357.1 million bbl in the week ended Aug. 31, out-stripping the previous week’s gain. Gasoline stocks continued falling, down 2.3 million bbl to 198.9 million bbl, with both finished gasoline and blending components in decline. Distillate fuel inventories increased 1 million bbl to 127.1 million bbl, but remained below average for the period.

The American Petroleum Institute earlier reported crude stocks fell 7.2 million bbl to 359.3 million bbl in that same period, with gasoline inventories down 2.3 million bbl to 201.8 million bbl. It said distillate fuel stocks dropped 132,000 bbl to 126.4 million bbl.

Imports of crude fell 1.5 million b/d to 8 million b/d last week, EIA reported. In the 4 weeks ended Aug. 31, crude imports averaged 8.6 million b/d, lower by 445,000 b/d than the comparable period in 2011. Gasoline imports last week averaged 964,000 b/d while distillate fuel imports averaged 135,000 b/d.

EIA said input into US refineries were down 772,000 b/d to 14.6 million b/d with units operating at 86.1% in the week that Hurricane Isaac hit Louisiana, temporarily idling much of that state’s refining capacity. Gasoline production increased to 9.3 million b/d last week, but distillate fuel production decreased to 4.3 million b/d.

Energy prices

The October contract for benchmark US sweet, light crudes inched up 6¢ to $95.36/bbl Sept. 5 on the New York Mercantile Exchange. The November contract increased 5¢ to $95.69/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 6¢ to $95.36/bbl.

Heating oil for October delivery declined 2.92¢ to $3.12/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.24¢ but closed essentially unchanged at a rounded $2.95/gal.

The October natural gas contract dropped 5.9¢ to $2.80/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 2.1¢ to $2.88/MMbtu.

In London, the October IPE contract for North Sea Brent lost $1.09 to $113.09/bbl. Gas oil for September fell $16.50 to $981.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down $1.65 to $111.20/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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