MARKET WATCH: New York crude price slips lower in mixed market

Prices for natural gas and petroleum products were up June 19, but crude prices continued to waffle in the New York market with the front-month contract slipping 0.4%, mitigated by a “mildly bullish” inventory report.

As was generally expected, Federal Reserve Chairman Ben Bernanke did not announce an immediate tapering of bond purchases following the June 19 meeting of the Federal Open Market Committee, the Fed’s policy-making arm. “However, he did reemphasize that tapering might begin in the next few meetings,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “He also reminded the market that a decision to pare back quantitative easing hinges on future data flow, particularly surrounding the labor market.”

The US Department of Labor reported June 20 new applications for unemployment benefits last week increased by 18,000 to 354,000, seasonally adjusted. Employers added 175,000 jobs in May, but the unemployment rate increased to 7.6% from 7.5% partly because more US workers quit current jobs to seek better positions in an improving market. Nevertheless, 4.5 million US residents received unemployment benefits in the week ending June 1, the latest data available, up 18,000 from the previous week.

Meanwhile, Ground reported, “Absent an accompanying and significant upward revision of the Fed’s growth outlook, dollar strength weighed on oil prices.”

Analysts in the Houston office of Raymond James & Associates Inc. reported, “Equities plunged after the Fed announcement, with the Standard & Poor’s 500 Index declining 1.4%.” Energy stocks outperformed S&P with SIG Oil Exploration & Production Index down 0.8% and the Oil Service Index down 0.9%.

Ground said, “Overnight, a disappointing Hong Kong and Shanghai Banking Corp. flash Purchasing Managers Index (PMI) manufacturing reading for China [48.3 vs. a consensus for 49.1 and the previous rate of 49.2] extended the downward pressure on oil prices. Although commodity markets have arguably become more comfortable with the slow growth momentum story in China, there might still be some downside for prices should second quarter gross domestic product growth turn out to be even weaker than the first quarter.”

The renewed strength of the US dollar dominated early oil market trading June 20. “While the market had expected much of what came out in yesterday’s FOMC statements and press conference, what was perhaps unexpected was that the FOMC forecasts for the end-2015 Fed funds rate have changed,” Ground reported. “Before yesterday, these forecasts were clearly bunched around 0.5%. But yesterday’s forecasts showed a wider dispersion with the favored forecast (just) being 1%. Hence, in a sense, the Fed’s forward guidance has edged up and, as a result, there has been a rise in implied rate differentials, providing support for the dollar.”

US inventories

The Energy Information Administration reported the injection of 91 bcf of natural gas into US underground storage in the week ended June 14, above Wall Street’s consensus for an injection of 89 bcf. That brought working gas in storage to 2.438 tcf, down 559 bcf from the comparable period a year ago and 47 bcf below the 5-year average.

EIA earlier said commercial inventories of US crude increased 300,000 bbl to 394.1 million bbl last week, opposite Wall Street’s consensus for a 500,000 bbl decline. Gasoline stocks gained 200,000 bbl to 221.7 million bbl in the same period, short of the 800,000 increase analysts expected. Finished gasoline inventories decreased while blending components rose. Distillate fuel inventories were down 500,000 bbl to 121.6 million bbl, compared with market predictions of 900,000 bbl growth (OGJ Online, June 19, 2013).

EIA’s latest oil inventory report was “perhaps mildly bullish” but was overshadowed “by the much greater FOMC-induced impact,” Ground said. Implied demand for crude and gasoline increased along with refinery utilization rates.

“We are still confident that robust gasoline demand over the coming months could see a working down of both gasoline and ultimately crude oil inventories in the US,” he said. “However, we do feel that market participants might still be overestimating this work-down of inventories if they simply extrapolate recent trends—we consider the slowdown in the 4-week average of implied demand measures as supportive of this view.”

Raymond James analysts said, “While consensus was calling for a build of 1.2 million bbl for ‘Big Three’ inventories [of crude, gasoline, and distillate fuel combined], they came in flat.” Crude stocks increased “in spite of flat crude imports, higher refinery utilization (up 2.1% week-over-week), and a 2.8% increase in total petroleum demand. However, this was more than offset by an unexpected draw in distillates,” they said. “Inclusive of the other fuel categories, total petroleum inventories decreased by 1 million bbl, which was modestly bullish for petroleum products. Cushing, Okla., crude inventories fell for the third consecutive week with a 700,000 bbl decrease to 48.6 million bbl, which is 800,000 bbl higher than this time last year.”

Energy prices

The July contract for benchmark US sweet, light crudes gave back 20¢ to $98.24/bbl June 19 on the New York Mercantile Exchange. The August contract retreated 19¢ to $98.48/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 20¢ to $98.24/bbl.

Heating oil for July delivery increased 1.08¢ to $2.97/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 1.3¢ to $2.89/gal.

The July natural gas contract continued to escalate, up 5.8¢ to $3.96/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 3.4¢ to $3.94/MMbtu.

In London, the August IPE contract for North Sea Brent gained 10¢ to $106.12/bbl. Gas oil for July advanced 75¢ to $871.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 68¢ to $103.78/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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