MARKET WATCH: Crude prices inch higher

Sam Fletcher
Senior Writer

HOUSTON, July 15 -- A labor strike in Brazil, civil unrest in Nigeria, and continuing tensions over Iran caused crude prices to inch slightly higher July 14 in the New York Mercantile Exchange.

Crude was under downward pressure in premarket trading that day as the US Treasury Dept. said it might take an equity stake in the quasigovernmental Federal Home Loan Mortgage Corp. (Freddie Mac) and Federal National Mortgage Assoc. (Fannie May). The Federal Reserve said it will offer direct loans at a discounted rate to help rescue the troubled mortgage firms. But the move triggered concerns that smaller regional mortgage banks may not be rescued by the government. It also signaled that there are still serious problems in the US economy. As a result, the dollar traded near record lows against the euro July 14.

Analysts at Pritchard Capital Partners LLC, New Orleans, said oil prices made "a modest move higher" in early trading July 15. "But these days a modest move can put prices near all-time highs and provoke a technical breakout," they said. "The news in the fundamental sector for oil is by no means clearly bullish; the Organization of Petroleum Exporting Countries is predicting a continued slump in demand, and there are signs in various industrialized countries that demand for jet fuel, gasoline, and even diesel is slowing."

They said, "Cash prices for gasoline continue to stretch their disconnect from the paper futures market. Every single US bulk market for unleaded (or the CARBOB grade on the West Coast) has gone negative to August futures and in the case of the Gulf Coast, the discount is about 15¢/gal. California buyers are not willing to chase the NYMEX and Midwestern gasoline is pegged variously at 7-8¢/gal under futures. Diesel has retained some of the modest premium it fetched a week ago, and its fate will be determined by the export market. Today saw more all-time new highs established for US retail prices. Gasoline hit $4.109/gal and diesel hit $4.83/gal on a nationwide basis."

Officials of Petroleo Brasileiro SA (Petrobras) said oil production from the Campos basin in Brazil remained "nearly normalized" despite an expected 5-day strike by offshore workers that began July 14, when union members said they halted work at 33 of 42 offshore platforms. Workers earlier claimed the strike could shut in as much as 400,000 b/d of Brazil's 1.8 million b/d production. However, company officials said only 63,000 b/d was shut in as the firm successfully implemented a contingency plan to maintain production and ensure platform security.

"We are not making a big case of the strike in Brazil as it is well defined in time, hence carries little unpriced risk," said Olivier Jakob at Petromatrix, Zug, Switzerland. "Furthermore the output loss estimates have been continuously revised down during the day."

Jakob said, "The low pressure system east of the Lesser Antilles needs, however, to be kept on the radar screen as it could be upgraded to tropical depression . . . and its calculated path would be favorable to develop into a US Gulf of Mexico risk." The system that could become Tropical Storm Cristobal differs from Tropical Storm Bertha, which currently poses no threat to the US, in that the latest system formed further south and could later head toward the Caribbean and Gulf of Mexico. It should gain strength as it encounters warmer water and a low shear environment near the Lesser Antilles.

Energy prices
The August contract for benchmark US light, sweet crudes increased 10¢ to $145.18/bbl July 14 on NYMEX. The September contract gained 12¢ to $145.78/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 48¢ to $145.18/bbl. Heating oil for August delivery declined 1.17¢ to $4.06/gal on NYMEX. The August contract for reformulated blend stock for oxygenate blending (RBOB) slipped by 0.55¢ to $3.56/gal.

The August natural gas contract gained 5.5¢ to $11.96/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 35.5¢ to $11.64/MMbtu. "After the heavy losses of last week, natural gas is starting to create some bottoming action," Jakob said.

In London, the August IPE contract for North Sea Brent crude lost 57¢ to $143.92/bbl. Gas oil for August fell $15.75 to $1,309.50/tonne.

The average price for OPEC's basket of 13 reference crudes dipped by 4¢ to $139.81/bbl on July 14.

Contact Sam Fletcher at samf@ogjonline.com