Oil and gas commodities fell Aug. 2 following reports of unexpected changes in US inventories while equity stocks dropped after European Central Bank President Mario Draghi failed to announce economic policy changes despite previous pledges to support the euro.
“Crude fell 2% and natural gas tanked 7.9% [in the New York market] on weak inventory data that significantly missed consensus estimates,” said analysts in the Houston office of Raymond James & Associates Inc.
The Energy Information Administration reported injection of 28 bcf of natural gas into US underground storage in the week ended July 27, up from Wall Street’s consensus for an increase of 21 bcf. Working gas in storage now totals 3.217 tcf, up 472 bcf from the comparable period a year ago and 407 bcf above the 5-year average.
EIA earlier said commercial US crude inventories fell 6.5 million bbl to 373.6 million bbl in the same week, far beyond Wall Street’s consensus for a reduction of 1 million bbl. Gasoline inventories dropped 2.2 million bbl to 207.9 million bbl, opposite analysts’ expectations of an 800,000 bbl gain. Distillate fuel stocks lost 1 million bbl to 124.3 bbl last week, dashing the market’s projection of a 1.1 million increase (OGJ Online, Aug. 2, 2012).
Tracking the decline in oil and gas prices, the SIG Oil Exploration & Production Index (EPX) and the Oil Service Index underperformed the broader markets, down 4.9% and 1.3%, respectively. “The EPX was particularly impacted by the slide in gas and a slew of negative earnings reports,” Raymond James analysts. The price spread between West Texas Intermediate and North Sea Brent has again widened beyond $18/bbl, they noted.
“With gas prices hovering around $3/Mcf, the year-over-year tightness has started to trend down as utility companies have most likely switched back to coal. With natural gas prices trading down yesterday and this morning, we need power demand to remain at elevated levels to avoid the max storage,” they said.
Marc Ground at Standard New York Securities Inc., the Standard Bank Group, reported, “The crude oil market held up relatively well amid disappointment surrounding yesterday’s ECB announcement, Brent more so than WTI.”
“The relatively muted reaction in energy markets underscores persistent supply side concerns,” he said. “Yesterday, the situation in Syria came to the fore again as UN Secretary General Kofi Annan resigned from his position as Syrian peace envoy. This serves to illustrate the explosiveness of the situation in the Middle East as well as the continued wrangling between global superpowers over this issue. Added to this, an inability to form a cohesive global response to the Syrian situation might embolden Iran concerning its nuclear program. This in turn can only spell further tensions surrounding the region and more concerns over global oil supply.”
The US Department of Labor reported Aug. 2 seasonally adjusted initial claims for unemployment benefits increased by 8,000 to 365,000 new claims in the week ended July 28, which also undercut market prices. The 4-week moving average was 365,500 new claims, down 2,750 from the revised previous average.
On the other hand, equity stocks soared in early trading Aug. 3 after the Labor Department reported the addition of 163,000 jobs in July, after 3 months of sluggish hiring. Nonetheless, the US unemployment rate increased to 8.3% from 8.2% in June.
Energy prices
The September contract for benchmark US light, sweet crudes dropped $1.78 to $87.13/bbl Aug. 2 on the New York Mercantile Exchange. The October contract fell $1.76 to $87.41/bbl. On the US spot market, WTI at Cushing, Okla., was down $1.78 to $87.13/bbl.
Heating oil for September delivery declined 1.65¢ to $2.84/gal on NYMEX. Reformulated stock for oxygenate blending for the same month, however, gained 3.54¢ to $2.87/gal.
The September natural gas contract lost 25.1¢ to $2.92/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 10.8¢ to $3.09/MMbtu.
In London, the September IPE contract for North Sea Brent dipped 6¢ to $105.90/bbl. Gas oil for August decreased $1.50 to $908/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 53¢ to $103.07/bbl.
Contact Sam Fletcher at [email protected]
