MARKET WATCH: Energy prices mixed in directionless markets

Energy prices were mixed Oct. 16 with the front-month US benchmark crude contract up just 0.3% in the New York market but North Sea Brent down 0.6% amid reports of inflated production by Saudi Arabia.

“West Texas Intermediate was buoyed by the general optimism that overtook markets yesterday,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. Investors’ appetite for risk investments improved on encouraging data on US industrial production and manufacturing activity, reports of higher third quarter earnings among some key corporations, and heightened expectations that Spain will request a bailout from other European countries, he said.

The European Union summit scheduled Oct. 18-19 in Brussels has “encouraged optimism that progress will be made on solving the region’s fiscal crisis—significant progress to our mind is doubtful—proving support for the euro and consequently lifting most dollar-denominated commodities,” Ground said.

“Brent largely ignored the optimism of the day,” he said. “Perhaps markets, like we do, felt the premium over WTI has been a bit extreme and not warranted, given the current supply outlook (yesterday, the premium closed $1/bbl lower). Nevertheless, geopolitical risks, while perhaps over-exaggerated these past few days, are still a concern. This should keep the spread between the two benchmarks from narrowing too significantly.”

In Houston, analysts at Raymond James & Associates Inc. said, “Markets have not picked a general direction that will be dictated by the earnings season, as fears of a rough quarter were countered with solid results from several bellwether companies yesterday.” Broader equity markets reacted with a “hefty 1% gain” from the Dow Jones Industrial Average and Standard & Poor’s 500 Index. Energy stocks rode the corporate earnings wave, sending the SIG Oil Exploration & Production Index and Oil Service Index up 1.6% and 1.7%, respectively, Raymond James reported.

US inventories

The Energy Information Administration said Oct. 17 commercial US crude inventories climbed 2.9 million bbl to 369.2 million bbl in the week ended Oct. 12, nearly twice the Wall Street consensus for a 1.5 million bbl gain. Gasoline stocks were up 1.7 million bbl to 197.1 million bbl in the same period, primarily because of increased blending components and far exceeding the cumulative 500,000 bbl gain analysts expected. Distillate fuel inventories fell 2.2 million bbl to 118.7 million bbl, outstripping an anticipated 1.5 million bbl drop.

The American Petroleum Institute earlier reported a 3.7 million bbl jump in US crude stocks to 369.3 million bbl last week, with gasoline inventories down 1.2 million bbl to 199.2 million bbl and distillate fuel stocks up 1.8 million bbl to 122.6 million bbl.

EIA said crude imports into the US increased 126,000 b/d to 8.3 million b/d last week. In the 4 weeks through Oct. 12, US crude imports averaged 8.1 million b/d, down 785,000 b/d from the comparable period in 2011. Gasoline imports last week averaged 530,000 b/d while distillate fuel imports averaged 85,000 b/d.

The input of crude into US refineries was up 70,000 b/d to 14.8 million b/d last week with units operating at 87.4% capacity, EIA reported. Gasoline production increased to 9 million b/d, and distillate fuel production increased to 4.5 million b/d.

Energy prices

The November contract for benchmark US light, sweet crudes increased 24¢ to $92.09/bbl Oct. 16 on the New York Mercantile Exchange. The December contract advanced 22¢ to $92.54/bbl. On the US spot market, WTI at Cushing, Okla., was up 24¢ to $92.09/bbl.

Heating oil for November delivery continued slipping, down 1.06¢ to $3.20/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.5¢ but closed essentially unchanged at a rounded $2.85/gal.

The November natural gas contract continued to decline, down 4.9¢ to $3.44/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 8.1¢ to $3.26/MMbtu.

In London, the November IPE contract for North Sea Brent fell 73¢ to $115.07/bbl. Gas oil for November rebound by $5.50 to $1,003.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes regained 39¢ to $111.09/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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