MARKET WATCH: Oil prices continue retreat in weak economy

Oil prices continued retreating May 14, with front-month crude down 1% in the New York market after the International Energy Agency cut its global demand estimates for the next 4 years.

Meanwhile, analysts in the Houston office of Raymond James & Associates Inc. reported, “Natural gas jumped 2.5% as a late cold spell in the northeastern US combined with hotter weather in the southwestern US to paint a more bullish demand picture.”

Oil prices were down in early trading May 15 on news the Euro-zone economy contracted for the sixth consecutive quarter. Meanwhile, European Union officials announced an investigation of possible price-fixing in oil markets. Although EU officials did not say which companies they are targeting, BP PLC, Royal Dutch Shell PLC, and Statoil AS confirmed to news media they are under investigation (OGJ Online, May 15, 2013).

The Standard & Poor’s 500 Index hit a new high May 14 as investors continued to favor the equity market. The Oil Service Index and the SIG Oil Exploration & Production Index followed the broader market and natural gas higher, up 0.4% and 1.7% respectively.

Paris-based IEA slightly increased its 2012 global oil demand forecast by 65,000 b/d to 90.6 million b/d due to revised German gas oil demand but kept its global growth forecast unchanged at 795,000 b/d. “This is still above our demand forecast, which currently sits at 90.4 million b/d, largely due to a more bearish outlook for the Pacific region as we anticipate the return of Japanese nuclear power toward the end of the year and a more conservative forecast for North American demand patterns in the wake of a drawn out economic recovery,” Raymond James analysts said (OGJ Online, May 14, 2012).

US inventories

The US Energy Information Administration reported commercial inventories of crude dipped 600,000 bbl to 394.9 million bbl in the week ended May 10, opposite Wall Street’s consensus for a 500,000 bbl increase. Gasoline stocks were up 2.6 million bbl to 217.7 million bbl in the same period compared with analysts’ expectations of a 1.1 million bbl drop. Both finished gasoline and blending components increased. Distillate fuel inventories rose 2.3 million bbl to 119.9 million bbl, exceeding the market’s outlook for a 500,000 bbl gain.

US imports of crude were up 17,000 b/d to 7.6 million b/d last week. In the 4 weeks through May 10, imports of crude into the US averaged 7.7 million b/d, down 1.1 million b/d from the comparable period last year. Gasoline imports last week averaged 671,000 b/d while distillate fuel imports averaged 98,000 b/d.

The input of crude into US refineries increased 73,000 b/d to 15.3 million b/d last week with units operating at 88% of capacity. Gasoline production increased to 8.9 million b/d; distillate fuel production increased to 4.6 million b/d.

Energy prices

The June contract for benchmark US light, sweet crudes dropped 96¢ to $94.21/bbl May 14 on the New York Mercantile Exchange. The July contract lost 93¢ to $94.48/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 96¢ to $94.21/bbl.

Heating oil for June delivery declined 1.8¢ to $2.87/gal on NYMEX. Reformulated stock for oxygenate blending for the same month, however, regained 1.66¢ to $2.84/gal.

The June natural gas contract jumped 9.9¢ to $4.03/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rebound 7.1¢ to $3.95/MMbtu.

In London, the June IPE contract for North Sea Brent declined 22¢ to $102.60/bbl. Gas oil for June was unchanged at $860.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down 18¢ to $100.29/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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