MARKET WATCH: Oil price decline accelerates; gas price flattens

The recent retreat in oil prices accelerated with front-month crude dropping 1% Aug. 6 in the New York futures market. The front-month natural gas contract traded flat after falling more than 6% last week.

Analysts in the Houston office of Raymond James & Associates Inc. reported, “With the lack of economic news and lighter summer activity weighing on trading volumes, the Standard & Poor’s 500 Index and the Dow Jones Industrial average closed marginally in the red” following hints from two regional Federal Reserve Bank presidents that the bank’s economic stimulus program might begin to taper off as early as September.

Energy stocks pulled back, with the Oil Service Index and the SIG Oil Exploration & Production Index both down 1%. Crude, gas, and equity prices were down in early New York trading Aug. 7 following sell-offs in Asia and Europe.

US inventories

The Energy Information Administration said Aug. 7 commercial US crude inventories fell 1.3 million bbl to 363.3 million bbl in the week ended Aug. 2, obliterating the previous week’s increase that was the first in 5 weeks. Last week’s decline was less than Wall Street’s consensus for a draw of 1.5 million bbl. Gasoline stocks rose 100,000 bbl to 223.6 million bbl last week, above average for this time of year. Analysts were expecting a decline of 500,000 bbl. Finished gasoline inventories increased while blending components decreased. Distillate fuel inventories increased 500,000 bbl to 126.5 million bbl. The market anticipated no change.

Imports of crude into the US were down 254,000 b/d to 7.9 million b/d last week. In the 4 weeks through Aug. 2, US crude imports averaged 8 million b/d, down 946,000 b/d from the comparable period a year ago. Gasoline imports last week averaged 635,000 b/d while distillate fuel imports ran 54,000 b/d.

The input of crude into US refineries declined 72,000 b/d to 15.9 million b/d last week with units operating at 90.9% of capacity. Gasoline production increased to 9.6 million b/d, and distillate fuel production rose to 4.9 million b/d.

The EIA earlier noted the price spread between North Sea Brent and West Texas Intermediate averaged $18/bbl in January, close to its 2012 average of $19/bbl when it reached wide levels as increasing oil production from North Dakota and Texas outpaced the ability of existing pipelines to transport crude to Gulf Coast refineries. The spread widen to $23/bbl as recently as February.

However, the Brent-WTI spread began to narrow considerably in March. By July it averaged slightly above $3/bbl, dipping to the lowest level since the start of 2011. Spot prices for the two benchmark crudes neared parity around $109/bbl July 19, and the spread was as close as $4/bbl July 30. “This increase in the WTI price was the result of new US transport infrastructure and US refineries running at near-record levels,” EIA officials said.

The WTI price rose relative to Brent in the first half of this year as several new crude transportation projects came online, including pipelines and crude-by-rail terminals. This helped clear Midcontinent transportation bottlenecks, particularly around Cushing, Okla. It increased access to domestic light, sweet crudes, and US refineries now are operating at higher capacity. Crude runs have increased steadily since early March to 16.1 million b/d in the week ended July 5, EIA reported.

Energy prices

The September contract for benchmark US light, sweet crudes fell $1.26 to $105.30/bbl Aug. 6 on the New York Mercantile Exchange. The October contract dropped $1.14 to $104.36/bbl. Monthly contracts posted sequentially lower closings through 2015.

Heating oil for September delivery lost 4.39¢ to $3.01/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 3.55¢ to $2.92/gal.

The September natural gas contract dipped 0.1¢ but closed essentially unchanged at a rounded $3.32/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 2.6¢ to $3.36/MMbtu.

In London, the September IPE contract for North Sea Brent retreated 52¢ to $108.18/bbl. Gas oil for August was down $11 to $909.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes decreased 87¢ to $105.56/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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