Sam Fletcher
OGJ Senior Writer
HOUSTON, July 9 -- Oil prices climbed July 8 for the second consecutive day in the New York market, with crude topping $75/bbl on renewed optimism for economic recovery and a larger-than-expected drop in US crude inventories.
The price of the front-month natural gas contract dropped 3.7%, however, on a bigger-than-expected increase in US storage.
The Energy Information Administration said July 8 commercial US crude inventories fell 5 million bbl to 358.2 million bbl in the week ended July 2, well below the Wall Street consensus for a 2 million bbl decrease. Gasoline stocks gained 1.3 million bbl to 219.4 million bbl in the same period. Distillate fuel inventories edged up 300,000 bbl to 159.7 million bbl (OGJ Online, July 8, 2010).
Of the drop reported in crude stocks, 2 million bbl were in the discounted Petroleum Administration for Defense District 5 (PADD 5) on the West Coast, “which then leaves a 3 million bbl decline in the PADDs that count,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “Lower crude oil stocks were expected due to the import restrictions linked to Hurricane Alex but such expectations did not materialize as the US Gulf Coast only drew less than 1 million bbl and US Gulf Coast crude oil imports were higher in the week, not lower, as higher imports from Iraq offset lower imports from Mexico.”
He said, “Crude oil stocks in Cushing, Okla., were only marginally lower (down 200,000 bbl) but early indications are that another small draw needs to be expected for next week. Gasoline stocks increased more than 1 million bbl during the reported week “as imports are on the high side and at the highest level in a week since early March of last year,” Jakob said. Distillate stocks increased only a marginally as there was a draw of high-sulfur heating oil that was offset a build in low-sulfur diesel, he reported.
The implied demand in the latest EIA oil inventories report is close to 1 million b/d higher than a year ago but still below the levels of 2008. “Implied demand for distillates is [up] a strong 16% vs. a year ago on the 4-week average while gasoline is [up] 2%, which is much stronger than the growth estimated by [the latest MasterCard Spending Pulse report] on the basis of sales at the pump,” Jakob said. “The strong implied oil demand is, however, calculated through no stock draw and that continues to say that supply increases are a match to demand increases.”
Natural gas
EIA also reported the injection of 78 bcf of gas into US underground storage in the week ended July 2. That increased the amount of working gas in storage past 2.76 tcf. That’s 23 bcf less than in the same period a year ago but 285 bcf above the 5-year average.
Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, “US gas storage levels still remain above normal although we have been revising our end of season peak lower. Hot weather is helping boost demand, and hurricanes may yet reduce supply.”
However, Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston reported “almost all” of the decline in demand for natural gas in the latest week was in the southern US “due to the demand-destruction related to Hurricane Alex.” They said, “This underlines our earlier thesis that hurricanes are mostly bearish, destroying more demand than supply unless they damaged a significant portion of the Gulf of Mexico [production] infrastructure.”
The rising price of crude was supported by the United Nations’ International Monetary Fund’s upward revision of world gross domestic product growth this year to 4.6% from 4.2%. The agency also increased its forecast for US growth to 3.3%.
“On the domestic front, a 21,000 drop in the initial jobless claims provided further support to prices coming as a much needed shot in the arm for crude. The total US fuel consumption increased 3.2% to 19.6 million b/d, the highest level since the week ended May 28, while Hurricane Alex-related disruptions magnified the inventory draw,” Pritchard Capital Partners said.
In other news, oil and gas industry participants generally were jubilant over the US Court of Appeals for the 5th Circuit upholding an earlier decision by a federal judge against US President Barack Obama's moratorium on deepwater drilling as being too broad. However, analysts in the Houston office of Raymond James & Associates Inc. warned, “While an appeal to the Supreme Court is possible, deepwater E&P companies will likely remain on the sidelines until drilling permits resume.”
They said, “In this case, the Obama administration seems intent upon circumventing other branches of the government. Obama already has a new moratorium drafted to replace the original that was stricken down in court. More importantly for energy stocks, the practical implementation of the drilling ban will continue to occur regardless of the court ruling since the…Bureau of Ocean Energy [Management, Regulation, and Enforcement] will continue to stall and delay the offshore well permitting process (as they have done for shallow water drilling).”
Energy prices
The August contract for benchmark US light, sweet crudes climbed $1.37 to close at $75.44/bbl July 8 on the New York Mercantile Exchange. The September contract gained $1.39 to $76.03/bbl. On the US spot market, West Texas Intermediate at Cushing continued to match the front-month crude futures price, up $1.37 to $75.44/bbl. Heating oil for August delivery advanced 2.66¢ to $2.01/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 2.58¢ to $2.05/gal.
The August natural gas contract dropped 16.6¢ to $4.40/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 19¢ to $4.52/MMbtu.
In London, the August IPE contract for North Sea Brent crude was up $1.20 to $74.71/bbl. Gas oil for July gained $13.75 to $640.25/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased $2.12 to $71.86/bbl.
Contact Sam Fletcher at [email protected].
Rystad Energy.
