MARKET WATCH: Crude prices rebound in New York market

Crude prices increased in New York and London markets July 17 with the front-month US benchmark contract and North Sea Brent both up 0.5% although US inventories of gasoline and distillates increased last week while crude stocks dropped much more than expected.

The Dow Jones Industrial Average and Standard & Poor’s 500 Index closed up 0.1% and 0.3%, respectively, “as the markets attempted to digest [Federal Reserve System Chairman Ben] Bernanke's insistence that although the dreaded ‘tapering’ could occur later this year, economic weakness in the meantime could extend the bond-buying program further,” said analysts in the Houston office of Raymond James & Associates Inc.

The Oil Service Index increased 0.6% while the SIG Oil Exploration & Production Index gained 0.7%.

“Yesterday was largely about Bernanke’s semi-annual report to Congress, which kicked off with his report to the House Financial Services Committee,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “Today we have his report to the Senate Banking Committee.”

His testimony before the House committee was “generally on the dovish side, although…not more dovish than Bernanke’s comments last week—so perhaps markets were left wanting, which would explain the dollar gains that weighed on commodities,” Ground said. “Perhaps too the market was also hoping for more clarity on the exact timing and nature of the Fed’s likely withdrawal of stimulus and in the absence of this (due to no fault of the Fed’s, since given the uncertain economic path the US is still treading it would be unwise for the Fed to commit a priori to specific timetable) has been left with lingering uncertainty which has prompted it to seek safety in the dollar.”

US inventories

The Energy Information Administration reported July 18 the injection of 58 bcf of natural gas into US underground storage in the week ended July 12, less than Wall Street’s consensus for an input of 65 bcf. That raised working gas in storage to 2.745 tcf, down 414 bcf from the comparable period in 2012 and 34 bcf below the 5-year average.

EIA earlier reported commercial US crude inventories fell 6.9 million bbl to 367 million bbl last week, far below Wall Street’s consensus for a 2 million bbl drop. Yet crude inventories remain above average for this time of year. Gasoline stocks jumped 3.1 million bbl to 224.1 million bbl last, opposite market expectations of a 1.5 million bbl decline. Both finished gasoline and blending components increased, with total gasoline inventory well above average. Distillate fuel inventories climbed 3.9 million bbl, more than twice the 1.5 million bbl gain analysts expected (OGJ Online, July 17, 2013).

The rise in gasoline and distillate inventories despite the across-the-board decrease in implied demand measures is “disconcerting,” Ground said. US refinery utilization increased to 92.8% last week from 92.4% the previous week as US refiners processed the most crude in almost 8 years.

Raymond James analysts noted the combined “Big Three” inventory of crude, gasoline, and distillate fuel was flat last week vs. a consensus for a 2 million bbl draw. “Total inventories are still up by 20.8 million bbl (2.4%) from year-ago levels,” they said.

Crude inventories at Cushing, Okla., continued declining, down 900,000 bbl last week to 46.1 million bbl—200,000 bbl less than in the comparable period a year ago.

Energy prices

The August contract for benchmark US sweet, light crudes climbed 48¢ to $106.48/bbl July 17 on the New York Mercantile Exchange. The September contract gained 66¢ to $106.35/bbl. On the US spot market, West Texas Intermediate at Cushing remained in lock-step with the front-month futures contract, up 48¢ to $106.48/bbl.

Heating oil for August delivery increased 2.43¢ to $3.07/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 2.42¢ to $3.11/gal.

The August natural gas contract dropped 4.8¢ to $3.63/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dipped 0.1¢ but closed essentially unchanged at a rounded $3.67/MMbtu.

In London, the new front-month September IPE contract for Brent advanced 47¢ to $108.61/bbl. Gas oil for August rose $4 to $923.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes slipped 11¢ to $105.28/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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