MARKET WATCH: Escalating conflict in the Middle East raises oil prices

Oil prices increased Nov. 14, ending a 2-day decline, following Israeli airstrikes in Gaza that killed a Hamas military leader in response to earlier rocket attacks on Israel.

Hamas retaliated Nov. 15, firing 150 rockets across the border with Israel, some hitting the outskirts of Tel Aviv. Israel continued air attacks on militant targets in the Gaza Strip and called up reserves for a possible assault.

“The escalation in Gaza comes against the backdrop of a market that is already fearful about the fiscal cliff [resulting from the Congressional debate of the budget] and the European debt crisis, and all of this has been weighing on investor confidence,” said analysts in the Houston office of Raymond James & Associates Inc. “Broader markets reacted to yesterday's events with a 1.5% drop, and the [SIG Oil Exploration & Production Index] and [Oil Service Index] were down 1.3% and 1.6% [respectively] as well, despite a 1.1% spike in crude (geopolitical risk premium) and modest gain in natural gas.” They said crude, and natural gas prices were higher in early trading Nov. 15.

“Given the renewed focus on the Middle East, oil markets largely ignored the strong build in American Petroleum Institute reported crude inventories,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. The subsequent Energy Information Administration report “might garner more interest, barring any escalation of the Israeli-Gaza conflict, as investors look for indications of US supply and demand.”

US inventories

EIA officials said Nov. 15 commercial US inventories of crude increased 1.1 million bbl to 375.9 million bbl in the week ended Nov. 9, well short of Wall Street’s consensus for a build of 2.7 million bbl. Gasoline stocks dropped 400,000 bbl to 201.9 million bbl in the same period, less than the 1 million bbl decline analysts expected. Both finished gasoline and blending components declined. Distillate fuel inventories fell 2.5 million bbl to 115.5 million bbl, outstripping market expectations of a 1 million bbl decline.

API earlier reported US crude stocks were up 1.4 million bbl to 373 million bbl last week, with gasoline inventories down 103,000 bbl to 200.8 million bbl and distillate stocks up 184,000 bbl to 118.5 million bbl.

EIA said crude imports into the US dropped 141,000 b/d to 7.9 million b/d last week. In the 4 weeks through Nov. 9, crude imports averaged 8.2 million b/d, down 721,000 b/d from the comparable period a year ago. Gasoline imports averaged 598,000 b/d last week. Distillate fuel imports averaged 200,000 b/d.

The input of crude into US refineries declined 55,000 b/d to 14.6 million b/d last week with units operating at 86% of capacity. Gasoline production increased to 9.1 million b/d, and distillate fuel production rose slightly to 4.6 million b/d, EIA said.

EIA also reported the withdrawal of 18 bcf of natural gas from US underground storage last week. That reduced working gas in storage to 3.911 tcf. However, stocks are still 71 bcf higher than a year ago and 209 bcf above the 5-year average.

In other news, the US Department of Labor reported initial requests for unemployment benefits increased by 78,000 to 439,000 last week—the highest level in 18 months—with many applications coming from states damaged by the “superstorm” stemming from Hurricane Sandy. DOL officials said the storm has affected claims data for the last 2 weeks and may continue to do so for another 2 weeks. Nearly 5 million people were receiving unemployment benefits during the week ended Oct. 27, the latest available data. Some of those no longer receiving benefits may have gotten jobs, but many have exhausted their allotted benefits.

Labor officials also reported the consumer price index rose a seasonally adjusted 0.1% in October, compared with gains of 0.6% in the previous two months that included higher pump-prices for gasoline. In October, however, a 0.6% drop in gasoline prices was offset by higher rents and food costs, officials said. Excluding volatile food and gasoline prices, consumer costs were up 0.2% last month.

Energy prices

The December contract for benchmark US sweet, light crudes bounced back by 94¢ to $86.32/bbl Nov. 14 on the New York Mercantile Exchange. The January contract recovered 91¢ to $86.75/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., followed the front-month futures contract up 94¢ to $86.32/bbl.

Heating oil for December delivery regained 2.74¢ to $2.99/gal on NYMEX. Reformulated stock for oxygenate blending for the same month recouped 2.52¢ to $2.68/gal.

The December natural gas contract continued its rise, up 2.1¢ to $3.76/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 7.5¢ to $3.66/MMbtu.

In London, the December IPE contract for North Sea Brent was up $1.35 to $109.61/bbl. Gas oil for December retook $5 to $928.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes rose 24¢ to $106.21/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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