MARKET WATCH: Crude prices slump as US inventory, Saudi production grow

Energy prices continued to slump June 11 with front-month crude down 0.6% in the New York market after the Organization of Petroleum Exporting Countries said it produced 30.57 million b/d in May.

“That’s a six-month high with Saudi Arabia offsetting declines from Libya and Iraq,” said analysts in the Houston office of Raymond James & Associates Inc. The front-month contract for North Sea Brent fell further as the UK’s Buzzard field came back online, “squeezing the West Texas Intermediate-Brent spread to a 2-year low,” they said. Natural gas dropped 1.8%.

Equity “markets tanked yesterday” with the Standard & Poor’s 500 Index down 1%. Raymond James reported, “The catalyst for the broad selloff was the Bank of Japan’s decision to maintain the current package of stimulus tools, rather than capitulate to market expectations for additional easing.” The SIG Oil Exploration & Production Index and the Oil Service Index were down 2.1% and 1.7%, respectively.

In its monthly oil market report June 12, Paris-based International Energy Agency “tweaked its 2013 global oil demand growth forecast down 10,000 b/d to 785,000 b/d,” Raymond James analysts said. “This is still above our demand growth forecast, which currently sits at 660,000 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. Looking at supply, OPEC production rose by 135,000 b/d in May due to higher output from Saudi Arabia, Iran, and the UAE. Despite the higher OPEC supply, global supply decreased slightly by 90,000 b/d, primarily due to Canadian maintenance.”

Meanwhile, the “apparent resilience of the US consumer” and an easing of retail gasoline prices in the US due to large inventories of crude and gasoline, “may prove to be less of a constraint to WTI upside than we had originally thought,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “However, we would caution against inferring too much from the recent and abrupt pick-up in indicators of potential gasoline demand.”

With US consumer confidence rapidly improving and steady progress in the job market, he said, “It would appear that this resilience might be maintained over the summer and translate into robust gasoline demand, given relatively mild gasoline prices.”

Ground said, “Gasoline prices have come down considerably since March, with the catalyst for this correction ostensibly April’s sudden drop in oil prices. However, while the WTI price since then has regained much of what it had lost, gasoline prices have remained relatively flat. Clearly, oil price movements were only part of this correction in gasoline prices.” As long as inventories remain ample, it should limit any increase in gasoline prices even amid growing demand.

Ground said, “Growth in US crude oil production, although less of a concern now, still remains a bit of a brake on declining US crude oil inventory.”

US inventories

The Energy Information Administration said June 12 commercial US crude inventories, already above average for this time of year, climbed 2.5 million bbl to 393.8 million bbl in the week ended June 7, opposite Wall Street’s consensus for a drawdown of 1.5 million bbl. Gasoline inventories escalated by 2.7 million bbl, also above average and exceeding the market’s expectation of a 500,000 bbl gain. Both finished gasoline inventories and blending components increased last week. Distillate fuel inventories dropped 1.2 million bbl, opposite analysts’ outlook for a 1.5 million bbl gain.

Imports of crude into the US were up 582,000 b/d to 7.9 million b/d last week. In the 4 weeks through June 7, US crude imports averaged 7.8 million b/d, down 1.2 million b/d from the comparable period a year ago. Gasoline imports last week averaged 692,000 b/d while imports of distillate fuel averaged 52,000 b/d.

The input of crude into US refineries declined by 225,000 b/d to 15.2 million b/d last week with units operating at 87.5% of capacity. Gasoline production decreased to 9.2 million b/d, and distillate fuel production declined to 4.7 million b/d.

Energy prices

The July contract for benchmark US light, sweet crudes lost 30¢ to $95.38/bbl June 11 on the New York Mercantile Exchange. The August contract retreated 40¢ to $95.60/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 30¢ to $95.38/bbl.

Heating oil for July delivery declined 2.63¢ to $2.86/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 2.5¢ to $2.82/gal.

The July natural gas contract dropped 7.6¢ to $3.72/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 8.8¢ to $3.76/MMbtu.

In London, the July IPE contract for North Sea Brent was down 99¢ to $102.96/bbl. Gas oil for June lost $10.75 to $858.50/tonne.

The average price for OPEC’s basket of 12 benchmark crudes gave up 66¢ to $100.72/bbl.

Contact Sam Fletcher at

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