MARKET WATCH: Oil, product prices mixed pending US inventory report

Crude oil and product futures prices were mixed on the New York and London markets on July 29 as US and Europe jointly announced broader sanctions against Russian businesses in retaliation for Russia’s involvement in the ongoing unrest in Ukraine.

Analysts said that wider sanctions against Russia coupled with violence in the Middle East keeps a floor on oil prices while weak oil demand limits any substantial gain in oil prices.

Barclays Capital Inc. analysts said in a research note that broader sanctions on Russian oil and gas companies and Russian banks “will curb foreign investment, limit these companies’ access to international capital, dent Russian economic growth, and increase the likelihood of project delays and a decline in Russian oil output in 2015.”

Bayclays analysts expect oil prices will average $108/bbl in 2015, which would be a slight decline from what they forecast for 2014. Barclays forecast says the demand for crude oil from the Organization of Petroleum Exporting Countries is expected to fall, putting pressure on OPEC to cut production.

“Geopolitical tensions in Eurasia, North Africa, and the Middle East continue to support price levels even in the absence of additional disruptions to the physical supply of oil,” Barclays analysts said. They expect the Brent-West Texas Intermediate spread will narrow to $6/bbl in 2015. This forecast is roughly $4/bbl tighter than the current spread.

“Amid acute geopolitical tension, upside demand potential from India, new Middle East refining capacity, stabilized US condensate exports, strategic stockbuilding, higher smuggled crude volumes, and crude quality changes will all impact physical and perceived market balances in the remainder of 2014 and in 2015,” Barclays said.

Meanwhile, the Energy Information Administration said US commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, decreased by 3.7 million bbl for the week ended July 25 compared with the previous week.

At 367.4 million bbl, US crude oil inventories are in the upper half of the average range for this time of year, EIA said in its weekly petroleum status report. It was the fifth consecutive drop in crude inventories, and the most recent drop was bigger than analysts expected.

Before EIA’s report was released July 30, analysts told the Wall Street Journal they expected a decline of 1.8 million bbl. The American Petroleum Institute said its separate estimate indicated crude stocks fell by 4.4 million bbl last week while gasoline and distillate supplies rose.

US gasoline supplies build

Total US motor gasoline inventories increased by 400,000 bbl for the week ended July 25, which EIA called the upper half of the average range. Finished gasoline inventories decreased while blending components inventories increased.

Distillate fuel inventories increased 800,000 bbl, which is near the lower limit of the average range for this time of year, EIA said. Propane-propylene inventories rose 1.8 million bbl last week and are near the upper limit of the average range.

US refinery inputs averaged 16.6 million b/d during the week ending July 25, which was 47,000 b/d fewer than the previous week’s average. Refineries operated at 93.5% of capacity last week.

Gasoline production decreased last week, averaging over 9.3 million b/d. Distillate fuel production decreased last week, averaging over 5 million b/d.

US crude oil imports averaged over 7.7 million b/d last week, up by 337,000 b/d from the previous week. Over the last 4 weeks, crude oil imports averaged about 7.5 million b/d, which was 5% below the same 4-week period last year.

Total motor gasoline imports, including both finished gasoline and gasoline blending components, last week averaged 602,000 b/d while distillate fuel imports averaged 124,000 b/d.

Energy prices

The New York Mercantile Exchange September crude oil contract fell 70¢ on July 29, closing at $100.97/bbl. The October contract decreased 59¢ to $99.73/bbl.

The natural gas contract for August rose 6.1¢ to a rounded $3.81/MMbtu. On the US cash market, gas at Henry Hub, La., fell 7¢ to $3.75/MMbtu.

Heating oil for August delivery gained 1.88¢ to a rounded $2.91/gal. Reformulated gasoline stock for oxygenate blending for August delivery was up 2.17¢ to a rounded $2.87/gal.

The September ICE contract for Brent crude delivery climbed 15¢ to $107.72/bbl. The October contract increased 18¢ to $108.05/bbl. The ICE gas oil contract for August gained $4.75 to $894/tonne.

A price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was $105.44/bbl on July 29, up 33¢.

Contract Paula Dittrick at paulad@ogjonline.com.

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