MARKET WATCHCrude futures price retreats from record high

Aug. 4, 2005
Energy prices fell Aug. 3, following a government report of a small but surprising build in US crude reserves after 4 weeks of declines.

Sam Fletcher
Senior Writer

HOUSTON, Aug. 4 -- Energy prices fell Aug. 3, following a government report of a small but surprising build in US crude reserves after 4 weeks of declines.

The Energy Information Administration said commercial US crude stocks increased by 200,000 bbl to 318 million bbl during the week ended July 29. Distillate fuel inventories gained 1.5 million bbl to 127.3 million bbl in the same period, with a sharp increase in diesel fuel. Gasoline stocks plunged by 4 million bbl to 205.2 million bbl, indicating continued strong demand (OGJ Online, Aug. 3, 2005).

However, analyst Paul Horsnell with Barclays Capital Inc. in London said he expects "the upwards momentum to continue towards a test of $65/bbl" for near-month crude contracts in the New York futures market.

It is "currently impossible" to buy futures contracts for benchmark US sweet, light crudes "for less than $60/bbl for any delivery date" through December 2011 on the New York Mercantile Exchange, Horsnell said in an Aug. 3 report. "Every 2006 delivery month is currently trading above $64, and a few months have already showed their head above $65. Further, the move up still has some impetus," he said.

"The oil system, both upstream and downstream, is being run close to sustainable limits, and the tensions created by the absence of slack are now the key driver of prices," Horsnell said. "The profusion of recent snags in the US refining system even suggests that, over time, the system is being pushed beyond its sustainable limits and, hence, that interruptions are becoming more likely."

Energy prices
From record highs in the previous session, the September contract for benchmark US crude dropped $1.03 to settle at $60.86/bbl on NYMEX, but not before hitting a new intraday price record of $62.50/bbl. The October contract lost $1 to $61.87/bbl. On the US spot market, West Texas Intermediate was down by $1.03 to $60.87/bbl. Heating oil for September delivery declined by 3.62¢ to $1.69/gal on NYMEX. Gasoline for the same month was down by 1.07¢ to $1.77/gal.

The September natural gas contract dipped by 2.7¢ to $8.35/MMbtu "as profit-taking set in after a record-breaking rally with heat and humidity blanketing much of the nation," said analysts at Enerfax Daily. Power grid operators from the Midwest to the Mid-Atlantic reported electricity demand on Aug. 3 exceeded the record high levels recorded the previous week, analysts said.

On Aug. 4, EIA reported the injection of 37 bcf of natural gas into US underground storage during the week ended July 29. That was below the consensus of Wall Street analysts and down from injections of 42 bcf the previous week and 83 bcf during the same period. US gas storage now exceeds 2.4 tcf , up by 53 bcf from year-ago levels and 170 bcf above the 5-year average.

As previously announced, EIA revised its estimation methodology to bring the weekly storage figures more in line with actual monthly levels. As a result, EIA revised upward the storage levels for the week ended July 22 to 2.383 tcf from 2.381 tcf originally reported.

In London, the September contract for North Sea Brent crude lost 97¢ to $59.65/bbl on the International Petroleum Exchange. The August gas oil contract was down by $4 to $525/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes increased by 1¢ to $55.13/bbl on Aug. 3.

Contact Sam Fletcher at [email protected]