MARKET WATCH: Crude price falls by more than $5/bbl

Front-month crude futures fell more than $5/bbl July 8 in the biggest 1-day loss in 4 months in the New York market as the strengthening dollar and other economic factors triggered a sell-off of commodities.

Sam Fletcher
Senior Writer

HOUSTON, July 9 -- Front-month crude futures fell more than $5/bbl July 8 in the biggest 1-day loss in 4 months in the New York market as the strengthening dollar and other economic factors triggered a sell-off of commodities.

However, crude recovered some of that loss in premarket electronic trading July 9 after Iran test-fired nine long- and medium-range missiles in the Persian Gulf, demonstrating that it is equipped to retaliate against attacks by Israel or the US.

US inventories
The Energy Information Administration said July 9 commercial US crude inventories fell 5.9 million bbl to 293.9 million bbl in the week ended July 4, surpassing Wall Street expectations of a 2 million bbl draw. Gasoline inventories increased by 900,000 bbl to 211.8 million bbl in the same period, vs. expectations of a 200,000 bbl build. Distillate fuel climbed 1.8 million bbl to 122.5 million bbl, below previous predictions of a 2.1 million bbl increase. Propane and propylene inventories increased by 2.6 million bbl to 44 million bbl in the same period.

Imports of crude into the US dropped 621,000 b/d to 9.5 million b/d during that same week. Input of crude into US refineries increased 75,000 b/d to 15.5 million b/d with plants operating at 89.2% of capacity. Gasoline production fell to 8.9 million b/d while distillate fuel production increased to 4.6 million b/d.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, "Refinery margins had been coming under severe pressure with physical gasoline trading below crude oil. In a political climate where any lawmaker is looking for an excuse to launch an investigation into the practices of the oil industry, it is doubtful that refiners would make any run cuts announcement to the media; however given the current oil economics, run cuts are a foreseeable reality."

In its short-term outlook issued July 8, the EIA raised its [2008] oil price forecast by 4.3% to $127/bbl, citing flat domestic oil consumption but strength in diesel demand from emerging markets. "Similarly, the EIA raised its natural gas forecast by a greater magnitude to $11.86/Mcf in 2008 and $11.62/Mcf in 2009, reflecting an average increase of 86% from its June forecast," said analysts in the Houston office of Raymond James & Associates Inc.

"The forecast [gas price] increase was largely due to high oil prices, low LNG imports, and a year-over-year decline in inventories. As growers begin replanting following the Midwest floods, demand for natural gas-based fertilizers is expected to increase in the short term. Still, we expect the increase in domestic production to overcome an increase in demand and to start placing pressure on natural gas prices later this summer," Raymond James analysts said.

Energy prices
The August contract for benchmark light, sweet crudes fell $5.37 to $136.04/bbl July 8 on the New York Mercantile Exchange, the biggest 1-day loss since March 19. The September contract dropped $5.30 to $136.73/bbl. A spot market price for West Texas Intermediate was not available. Heating oil for August lost 14.94¢ to $3.82/gal on NYMEX. The August contract for reformulated blend stock for oxygenate blending (RBOB) was down 11.96¢ to $3.36/gal.

The August natural gas contract fell 60.9¢ to $12.37/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 43.5¢ to $12.44/MMbtu. "Plummeting crude values, a near-term reduction in weather-related demand, a strong showing from the US dollar and less risk from Hurricane Bertha combined on [July 8] to help August natural gas futures record its second consecutive day of a 60¢ decline," said analysts at Pritchard Capital Partners LLC, New Orleans. Bertha weakened to Category 1 strength July 8 and is still tracking to the north-northwest. It does not appear to be threatening the US.

In London, the August IPE contract for North Sea Brent crude lost $5.44 to $136.43/bbl, still above benchmark US crude on NYMEX. Gas oil for July fell $48 to $1,222.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes was down $3.23 to $135.21/bbl on July 8.

Contact Sam Fletcher at samf@ogjonline.com.

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