Market watch: Bullish securities market boosts energy futures prices

By OGJ editors

HOUSTON, Aug.7 -- Boosted by a big jump in the securities markets, energy futures prices rebounded Tuesday, continuing a recent sequence of advances and declines in alternate trading sessions.

The upward movement of the stock market Tuesday instilled a more bullish economic outlook among energy traders, so that gains in oil and distillate prices in New York and London more than offset Monday's losses.

The September contract for benchmark US light, sweet crudes increased by 59¢ to $27.17/bbl on the New York Mercantile Exchange, while the October position advanced by 58¢ to $26.61/bbl. Heating oil for September delivery jumped by 1.14¢ to 67.78¢/gal.

Unleaded gasoline for the same month was up 0.65¢ to 77.47¢/gal, recouping nearly all of Monday's 0.66¢ loss. The September natural gas contract inched up just 3.8¢ to $2.72/Mcf, following a loss of 18.8¢ during the previous session.

After the close of NYMEX trading, the American Petroleum Institute reported US oil inventories fell almost 3.9 million bbl to 305.1 million bbl last week. However, US distillate stocks jumped by 1.7 million bbl to 134.5 million bbl, while gasoline inventories increased by 194,000 bbl to 212.8 million bbl during the same period.

"With further evidence of tightening crude oil inventories, helped by low levels of Iraqi exports and increasing seasonal demand outside the US, this week's API report is likely to keep crude prices well supported," said Matthew Warburton, an analyst with UBS Warburg LLC in New York.

With the 10 active members of the Organization of Petroleum Exporting Countries producing less oil than is needed to meet world demand in the second half of this year, and the impact of a retroactive pricing policy by Iraq—OPEC's 11th member—for oil exported to the US under the United Nations' oil-for-aid program, he said, "US crude stocks are gradually trending downward. They currently stand 6.5% below their recent peak levels in April and at their lowest level since October 2001."

Warburton also noted that US refinery utilization last week fell to its lowest level—93.3%—in 2 months as a result of "high distillate inventories, unfavorable refining economics, and plant outages" on the East Coast.

"With US gasoline demand robust and the recent high level of gasoline imports essentially maintained, inventories remain comfortable," he said. But that also means "little near-term relief from the poor refining margin environment," he warned.

"US gasoline demand remains stunning," said Paul Horsnell, head of energy research for London-based JP Morgan Chase & Co., in a separate report Wednesday. "The first estimate for July (demand) is 9.088 million b/d, a new all-time record just eclipsing May of this year."

In London, the September contract for North Sea Brent oil jumped by 64¢ to $25.53/bbl Tuesday on the International Petroleum Exchange. However, the September natural gas contract dipped by 1.7¢ to the equivalent of $1.95/Mcf on IPE.

The average price for OPEC's basket of seven crudes increased by 17¢ to $24.94/bbl Wednesday.

"For more than 6 weeks, the value of the OPEC basket of crude oils has stayed within a band of just 3% either side of $25.25/bbl," Horsnell said. "Compare that to the movement in most financial markets over the same period, and particularly the swings in equities, and one sees that the oil market's reputation for volatility is not always deserved."