Sam Fletcher
OGJ Senior Writer
HOUSTON, Aug. 4 -- The front-month crude contract price continued to escalate Aug. 3, climbing 1.5% to top $82/bbl for the first time since May in New York even as the broader equity market declined in the face of disappointing earnings, stagnant consumer spending, and falling home sales.
The dollar fell 0.4% against the euro, which hit a 3-month high that helped push up energy prices. Also, traders anticipated a reduction in US crude inventories.
“The crude market is seeing $80/bbl as a new support level after crossing it on [Aug. 2] and even looked through the rather disappointing factory orders data,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston.
“Natural gas plunged, giving away earlier gains of almost 2.6% after Ford Motor Co. and General Motors Co. reported much lower July sales than analysts were expecting,” Sharma said. “Natural gas industrial demand is highly correlated to the auto-sales as it represents broad manufacturing activity. Earlier yesterday, the Commerce Department also reported that US factories orders declined by 1.2% in July vs. consensus of 0.5% drop.” He added, “Natural gas is also not getting any support from developing tropical storm Colin, which is expected to stay off the Gulf of Mexico producing regions.”
Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Pending home sales are falling to a record low, US consumption is flat, and US factory orders are down for the second month in a row. The macro-economic indicators continue to point to an US economy that is flattening, and in that context it should not be a surprise that the Federal Reserve System is getting increasingly worried about the pace of US recovery.”
He pointed out, “With the flattening of the US recovery the Fed is expected to maintain a no-interest-rate policy for a longer period and while this works against the dollar, zero-rates also work in favor of building stocks of oil, and we still do not believe that in a stagnant economy the weaker dollar will result in strong additional oil demand.”
Jakob reiterated, “West Texas Intermediate is now overly overbought vs. the exogenous correlations that would indicate a WTI price $3.40/bbl lower than the close of yesterday.”
US inventories
The Energy Information Administration reported Aug. 4 commercial US crude inventories fell 2.8 million bbl to 358 million bbl in the week ended July 30. That exceeded the Wall Street consensus for a drop of 1.7 million bbl. Gasoline stocks inched up by 700,000 bbl to 223 million despite traders’ expectations for a 1 million bbl loss. Distillate fuel inventories climbed 2.2 million bbl to 169.7 million bbl in that same period, surpassing a consensus for a 1 million bbl build.
Imports of crude into the US fell 1.5 million b/d to 9.6 million b/d in the week ended July 30, said EIA. In the 4 weeks through that date, imports averaged 10 million b/d, up 494 million b/d from the comparable period in 2009.
The input of crude into US refineries increased by 113,000 b/d to 15.6 million b/d in the latest week with units operating at 91.2% of capacity. Gasoline production decreased to 9.4 million b/d. Distillate fuel production increased slightly to 4.4 million b/d.
Energy prices
The September contract for benchmark US light, sweet crudes climbed $1.21 to $82.55/bbl Aug. 3 on the New York Mercantile Exchange. The October contract gained $1.23 to $82.99/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.21 to $82.55/bbl. Heating oil for September delivery advanced 4.62¢ to $2.20/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 2.5¢ to $2.19/gal. “The gasoline crack remains under pressure, but the heating oil crack is trending higher and heating oil is now trading at a premium to gasoline,” Jakob noted.
The September natural gas contract continued to tumble, down 6.2¢ to $4.64/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 11.5¢ to $4.81/MMbtu.
In London, the September IPE contract for North Sea Brent crude gained $1.86 to $82.68/bbl, at a premium over the NYMEX crude contract for the same month. “The overhang of [crude] stocks in the US should continue to pressure WTI, and we expect WTI to remain at parity or discount to Brent for a lengthy period of time,” Jakob said. Gas oil for August escalated by $11 to $691/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up $1.32 to $78.41/bbl.
Contact Sam Fletcher at [email protected].
Rystad Energy.
