Sam Fletcher
OGJ Senior Writer
HOUSTON, Aug. 2 -- Crude oil and natural gas prices continued to rally July 30 in the New York market, with the front-month crude contract swinging between $76.83-79.05/bbl in intraday trading.
Prices gained despite “disappointing” results in second-quarter gross domestic product indicating growth slowed in that quarter to 2.4% from 2.7% in the first quarter of this year. “Higher-than-estimated consumer confidence overshadowed the GDP report though, causing the broader market to remain relatively flat,” said analysts in the Houston office of Raymond James & Associates Inc.
Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “The equities market pared earlier losses following the bearish economic data and the broader commodities market strengthened.” However, he said, “Despite bearish inventory data and disappointing economic news, crude was little changed last week, falling only 3¢/bbl week-over-week as noncommercials increased their long positions…. Prices have been finding support from risk capital once again as the economic optimism in Europe has replaced the concerns about the region’s debt woes, which have started to fade into distant memory.”
The front-month September contract price for natural gas rose 2% on forecasts of hotter-than-normal weather across most of the US for the next couple of weeks. “Higher-than-normal temperatures are expected to result in another below-normal storage injection this week after [the previous bullish report of] injection of 28 bcf. We estimate that the Energy Information Administration will report an injection in the range of 25-35 bcf for the 7 days ending July 29,” said Sharma. That would bring the inventory level to 2.9 tcf and reduce the 5-year storage surplus from 8.9% to 8.1%, while increasing the year-over-year deficit, he said.
Meanwhile, the dollar index continued to decline “in a negative trend that has been verified since early June,” said Olivier Jakob at Petromatrix, Zug, Switzerland. He added, “The front West Texas Intermediate 3-2-1 refinery margin (September) was marginally stronger during the week on a small improvement both on the heating oil and the Reformulated blend stock for oxygenate blending (RBOB) crack. The contango in ICE gas oil continued to widen, and distillates on both sides of the Atlantic are being priced to move into storage.”
The WTI front spread was slightly weaker last week. “With early reports for stocks of crude oil in Cushing, Okla., showing a new record-high level and with the current tropical development moving away from a path to the US Gulf [Coast], we would expect the WTI time-spread to remain under relative pressure,” Jakob said. “The longer dated spread (December 2010-December 2011) remained under pressure despite the rise in WTI prices, and we are maintaining our negative bias on that spread.”
However, he said, “The Brent timespreads are still shallow as they are supported by lower production levels for field maintenance, and the relative strength in Brent is helping to narrow the WTI premium to Brent. With the overhang of petroleum stocks in the US, we would expect that the US will need to increasingly price for lower crude oil imports and higher product exports, and that should come through a lower WTI premium to Brent; in other words, we would expect the current downtrend in the WTI-Brent spread to continue towards a negative value.”
Jakob added, “UK natural gas [prices] were stable during the week, but US natural gas has been well supported in a positive momentum trend, and this is narrowing the spread between US natural gas and UK natural gas (which is however still very large).”
Energy prices
The September contract for benchmark US light, sweet crudes gained 59¢ to close at $78.95/bbl July 30 on the New York Mercantile Exchange. The October contract gained 56¢ to $79.39/bbl. On the US spot market, WTI at Cushing was up 59¢ to $78.95/bbl. Heating oil for August delivery advanced 0.55¢ to $2.04/gal on NYMEX. REBOB gasoline for the same month gained 0.92¢ to $2.11/gal.
The September natural gas contract increased 9.6¢ to $4.92/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 1.5¢ to $4.81/MMbtu.
In London, the September IPE contract for North Sea Brent crude gained 59¢ to $78.18/bbl. Gas oil for August lost $2.25 to $648.25/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 24¢ to $74.43/bbl. So far this year, OPEC’s basket price has averaged $75.50/bbl.
Contact Sam Fletcher at [email protected].
EIA.
Federal Reserve Bank of Dallas
