MARKET WATCH: Drop in crude stocks boosts prices

The front-month crude contract closed up 1% Jan. 16 after rising more than $1/bbl in intraday trading in the New York market following a government report of an unexpected decline in commercial US crude inventories.

Crude prices also were buoyed by a report the Organization of Petroleum Exporting Countries has reduced supply. According to the OPEC Monthly Oil Market Report, the group reduced production 465,000 b/d in December to its lowest level since October 2011. “However, the upward [price] momentum was not sustained as some profit-taking emerged overnight amid continued concern that demand remains weak and that this reduction in OPEC supply was merely a response to weaker global demand,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “We believe that loosening supply constraints (mainly via increased North American production) and anemic economic growth in the world's major oil consumers will see a weaker average crude oil price in the first quarter.”

In Houston, analysts with Raymond James & Associates Inc. reported, “Broader markets sentiment was mixed regarding the [US debt ceiling] debate, but the Standard & Poor’s 500 Index closed at its 5-year high after a 0.2% gain propelled by bellwether bank earnings.” They said, “Natural gas fell 0.7% on the session, leading to a mixed day for energy stocks.” The Oil Service Index inched up 0.7%, while the SIG Oil Exploration & Production Index dipped 0.2%.

After initial weakness in early oil market trading Jan. 17, Ground said, “A weakening dollar has provided some support for prices.”

US inventories

The Energy Information Administration reported commercial US crude inventories dropped 1 million bbl to 360.3 million bbl in the week ended Jan. 11, opposite Wall Street’s consensus for a 2.2 million bbl addition. Gasoline stocks increased 1.9 million bbl to 235 million bbl in the same week, less than analysts’ expectations of a 2.7 million bbl build. Finished gasoline inventories decreased while blending components increased. Distillate fuel stocks were up 1.7 million bbl to 132.4 million bbl. Analysts had anticipated an increase of 1.5 million bbl.

EIA subsequently reported the withdrawal of 148 bcf of natural gas from US underground storage in the week ended Jan. 11, exceeding Wall Street’s consensus for a 137 bcf take. That left 3.168 tcf of gas in US storage, down 147 bcf from the year-ago level but 316 bcf above the 5-year average.

Energy prices

The February and March contracts for benchmark US sweet, light crude closed up 96¢ each to $94.24/bbl and $94.68/bbl, respectively, Jan. 16 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., also increased 96¢ to match the front-month future contract’s closing of $94.24/bbl.

Heating oil for February delivery declined 1.22¢ to $3/gal on NYMEX. Reformulated stock for oxygenate blending for the same month, however, regained 1.48¢ to $2.72/gal.

The February natural gas contract lost 2¢ to $3.44/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 5.7¢ to $3.46/MMbtu.

In London, the February IPE contract for North Sea Brent increased 31¢ to $110.61/bbl. Gas oil for February fell $5.75 to $955/tonne.

The average price for OPEC’s basket of 12 benchmark crudes dropped 60¢ to $107.75/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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