MARKET WATCH: Crude prices, stocks decline

Crude and petroleum product prices continued to decline June 17 in futures markets as the weak US economy undermined demand and Saudi Arabia—and possibly other producers—appeared poised to boost output.

Sam Fletcher
Senior Writer

HOUSTON, June 18 -- Crude and petroleum product prices continued to decline June 17 in futures markets as the weak US economy undermined demand and Saudi Arabia—and possibly other producers—appeared poised to boost output.

On the political front, US Sen. John McCain, the apparent Republican presidential nominee, and Florida Gov. Charlie Christ, a possible contender for McCain's vice-president, both endorsed the concept of environmentally friendly drilling for oil and gas off Florida's coasts (OGJ Online, June 17, 2008). Both politicians previously opposed drilling in Florida waters prior to a surge in energy costs during a presidential election year.

Under political pressure to uncover speculators, the Commodity Futures Trading Commission said IntercontenentalExchange Inc.'s ICE Futures Europe exchange has agreed to share more trading data and match the trading limits of the New York Mercantile Exchange.

"ICE has been given 4 months by the CFTC to provide the same position details as the NYMEX and to enforce the same position rules," said Olivier Jakob at Petromatrix, Zug, Switzerland. However, he said, "The price impact [on energy futures] should be limited, especially since the ICE will still be allowed to grant 'waivers' to swap dealers hedging their exposure on futures."

Jakob said, "It shows, however, that the trend for regulatory change is increasing and at a faster pace than expected. The CFTC will report by Sept. 15 its analysis of index traders in commodity markets and by already stating that it was concerned [about] position-limit evasion through swap dealers we see an increasing risk for a change of categorization of index traders before the end of the year."

Meanwhile, in commodity trading, he said, "the Midwest flood is the main trading theme and energy is trailing returns in the other commodity categories."

US inventories
The Energy Information Administration said June 18 commercial inventories of benchmark US crude fell for the fifth consecutive week, down 1.2 million bbl to 301 million bbl in the week ended June 13. Gasoline stocks also dropped 1.2 million bbl, to 208.9 million bbl in the same week. Distillate fuel inventories gained 2.6 million bbl to 116.6 million bbl. Propane and propylene inventories were unchanged at 38.5 million bbl.

Imports of crude into the US increased by 571,000 b/d to 10.3 million b/d in that same period. Input of crude into US refineries was up 120,000 b/d to 15.4 million, with plants operating at 89.3% of capacity. Gasoline production was unchanged at 9 million b/d, while distillate fuel production decreased to 4.4 million b/d.

Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, reported, "Weak demand remains the primary problem in the sector, as the seasonal summer rise of gasoline consumption has yet to materialize. Over the past 4 weeks, gasoline demand is 1.8% below year-ago levels, on average, according to EIA. We expect this negative trend to continue in the coming weeks, and we believe that a sustained improvement in the sector is unlikely to occur absent an increase in demand, which has a low probability of occurring in a $130-plus/bbl crude oil price environment."

Energy prices
The July contract for benchmark US light, sweet crudes dropped 60¢ to $134.01/bbl June 17 on NYMEX. The August contract lost 81¢ to $134.53/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 61¢ to $134.01/bbl. Heating oil for July delivery slipped 0.52¢ to $3.82/gal. The July contract for reformulated blend stock for oxygenate blending (RBOB) declined 2¢ to $3.42/gal.

The July natural gas contract gained 1.9¢ to $12.95/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 10¢ to $12.82/MMbtu. Analysts at Pritchard Capital Partners LLC, New Orleans, said, "July natural gas futures struggled to make it to the 'plus' column, but in spite of the firm finish short-term traders are anticipating a period of weakness before any further market advance."

In London, the August IPE contract for North Sea Brent crude fell 99¢ to $133.72/bbl. The July gas oil contract dropped $26.25 to $1,237.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes lost 80¢ to $128.98/bbl on June 17.

Contact Sam Fletcher at samf@ogjonline.com.

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