MARKET WATCH: Oil prices slump again in nervous markets

Oil prices dropped again May 29, wiping out the 1-day rebound of the previous session with front-month crude down 2% in the New York market as the broader market also retreated.

“In a somewhat scary game of catch-up yesterday, the Treasury market sold off after the light at the end of the stimulus tunnel became more visible. This sent broader markets downward as a result, with 9 of 10 Standard & Poor’s 500 Index sectors in the red on the day and trading down 1% in aggregate,” said analysts in the Houston office of Raymond James & Associates Inc. “Lower Chinese economic growth brought demand worries back in focus, and the Organization of Petroleum Exporting Countries’ output target disagreements exacerbated market fears of a severe oversupply.” Energy stocks avoided a big selloff despite natural gas being down 1%, with the SIG Oil Exploration & Production Index trading flat on the day and the Oil Service Index falling only 0.4%.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, reported, “An easing of Syrian concerns, together with indications that OPEC will maintain the status quo, have seen oil prices more than surrender the gains of earlier in the week.”

Regardless what others may say, Ground noted, “Saudi Arabia’s oil minister and Kuwait’s OPEC governor have both indicated that their respective countries are satisfied with current prices, leading the market to believe that the cartel’s production targets will be left at 30 million b/d at the conclusion of this week's meeting of members.”

US inventories

The Energy Information Administration said May 30 commercial US crude inventories climbed 3 million bbl to 397.6 million bbl in the week May 24, the highest level since EIA began collecting data in 1978. Gasoline inventories dropped 1.5 million bbl to 219.2 million bbl in the same period. Finished gasoline inventories decreased while blending components increased slightly. Distillate fuel inventories rose 1.9 million bbl to 120.7 million bbl last week. Wall Street’s consensus was uniformly wrong with declines of 500,000 bbl each projected for crude, gasoline, and distillate fuels, Raymond James analysts reported.

Crude imports into the US were down 313,000 b/d to 7.8 million b/d last week. In the 4 weeks through May 24, US imports averaged 7.8 million b/d, which is 1.1 million b/d less than in the comparable period a year ago. Gasoline imports last week averaged 712,000 b/d while distillate fuel imports averaged 136,000 b/d.

Input of crude into US refineries was down 220,000 b/d to 15 million b/d last week with units operating at 86.4% of capacity. Gasoline production decreased to 9 million b/d. Distillate fuel production decreased to 4.8 million b/d.

EIA also reported the injection of 88 bcf of natural gas into US underground storage last week, more than Wall Street’s consensus of 86 bcf. That raised working gas in storage to 2.141 tcf, down 664 bcf from the comparable period a year ago and 88 bcf below the 5-year average.

Energy prices

The July contract for benchmark US sweet, light crudes fell $1.88 to $93.13/bbl May 29, its lowest closing since the beginning of the month on the New York Mercantile Exchange. The August contract dropped $1.85 to $93.35/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.88 to $93.13/bbl.

Heating oil for June delivery declined 3.71¢ to $2.87/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 4.97¢ to $2.80/gal.

The June natural gas contract continued falling, down 2.6¢ to $4.15/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 3.8¢ to $4.13/MMbtu.

In London, the July IPE contract for North Sea Brent gave back $1.80 to $102.43/bbl. Gas oil for June rolled back $10.50 to $865.25/tonne.

OPEC was preparing for the May 31 meeting of ministers, so no price update for its basket of 12 benchmark crudes was available.

Contact Sam Fletcher at samf@ogjonline.com.

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