MARKET WATCH: Energy prices fall across the board

Energy prices fell across the board July 24, more than wiping out gains from the previous session in most cases, with the front-month US benchmark crude contract down 1.8% in New York and North Sea Brent retreating 1.4% in London despite a bullish report on US oil inventories.

Crude prices took “the hardest falls in dollar terms that we’ve seen in over a month,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “Dollar strength and concerns over China’s growth prospects were the ostensible catalyst for the moves lower, [which] occurred across commodities.”

In Houston, analysts at Raymond James & Associates Inc. said, “Weak economic data out of China signaled lower oil demand from the world's second largest consumer of oil (and, as of this year, largest net importer).”

Equities also declined as the market “took a hiatus” from its fixation on the pending reduction of the Federal Reserve Bank’s economic stimulation program, “instead choosing to focus on (believe it or not) actual fundamentals,” Raymond James analysts reported. “Mixed earnings weighed against a positive US housing report and decent Euro-zone data to leave the Standard & Poor’s 500 Index and Dow Jones Industrial Index down marginally by 0.4% and 0.2%, respectively.” The Oil Service Index and the SIG Oil Exploration & Production Index underperformed, finishing the day with respective declines of 1.3% and 1.7%.

“In energy markets, the US oil supply growth trend [was] back on track, up 300,000 b/d in 3 weeks,” said Raymond James analysts. “One of the most common pushbacks to our structural bearish stance on US oil prices was that oil supply growth could in fact be sputtering.”

However, they said, “The last 3 weeks of Energy Information Administration data have clearly swung in our favor, with US supply climbing by a whopping 284,000 b/d since early July, or 95,000 b/d each week. By all accounts, US oil production appears to be right back on its horse, as we have climbed our way back towards year-over-year growth of 1.2 million b/d on a year-to-date basis.”

In other news, the US Department of Labor said new applications for unemployment benefits increased by 7,000 to a seasonally adjusted 343,000 last week. More than 4.8 million US residents received unemployment benefits in the week ended July 6, the latest data available.

US inventories

EIA reported July 25 the injection of 41 bcf of natural gas into US underground storage in the week ended July 19, less than Wall Street’s consensus for an addition of 46 bcf. That raised working gas in storage to 2.786 tcf, down 399 bcf from the comparable period in 2012 and 46 bcf below the 5-year average.

EIA earlier said commercial US crude inventories dropped 2.8 million bbl to 364.2 million bbl in the week ended July 19, matching exactly the Wall Street consensus. Gasoline stocks fell 1.4 million bbl to 222.7 million bbl, however, opposite analysts’ expectations of an increase of 1.7 million bbl. Finished gasoline inventories increased while blending components decreased. Distillate fuel declined 1.2 million bbl to 126.5 million bbl last week; a gain of 1.9 million bbl was anticipated (OGJ Online, July 24, 2013).

“While crude inventories matched expectations,” Raymond James analysts said, “‘Big Three’ inventories fell 5.4 million bbl vs. expectations of an 800,000 bbl build as gasoline and distillates both posted unexpected draws. It's worth noting that total inventories are still up by 5.5 million bbl (0.6%) from year-ago levels.”

They said, “The large crude draw came amid continuing high refinery utilization (92.3% [last] week and 92.8% in the previous week). Cushing, Okla., inventories continued their slide, declining 2.1 million bbl to 44 million bbl, which is 2.5 million bbl below this time last year.”

Energy prices

The September contract for benchmark US sweet, light crudes fell $1.84 to $105.39/bbl July 24 on the New York Mercantile Exchange. The October contract dropped $1.69 to $104.10/bbl. On the US spot market, West Texas Intermediate at Cushing followed the front-month futures contract down $1.84 to $105.39/bbl.

Heating oil for August delivery declined 2.23¢ to $3.05/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.43¢ but closed essentially unchanged, also at a rounded $3.05/gal.

The August natural gas contract lost 4.5¢ to $3.70/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., slipped 0.1¢ but closed virtually unchanged at a rounded $3.71/MMbtu.

In London, the September IPE contract for Brent decreased $1.23 to $107.19/bbl. Gas oil for August was down $5.50 to $914.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes retreated 51¢ to $105.44/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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