MARKET WATCHCrude prices slide amid higher gasoline, oil stocks

Sam Fletcher
Senior Writer

HOUSTON, July 20 -- Crude futures prices continued dropping July 19 to the lowest levels since late June in the New York market with reports of unexpected increases in US inventories of crude and gasoline.

The US Energy Information Administration reported gasoline stocks jumped by 1.5 million bbl to 214.2 million bbl in the week ended July 14, while commercial US crude inventories inched up by 200,000 bbl to 335.5 million bbl.

Analysts had expected both to decline. "The latest US weekly data reverse the tightening seen in the previous data, with gasoline inventories rising counter-seasonally. Demand indications have remained strong for gasoline and diesel, while they are weaker for fuel oil and jet fuel," said Paul Horsnell, Barclays Capital Inc., London.

The recent focus on fighting in Lebanon amid traders' assumption that war won't spread to Syria or Iran "has perhaps blindsided the market from some other developments," Horsnell said. Meanwhile, fighting has escalated in Iraq, and Iran did not respond prior to the G8 summit meeting to European proposals for ending its uranium-enrichment program, as previously demanded. The United Nation's Security Council is scheduled next week to draft a resolution demanding resolution of that issue.

Crude prices appeared to rebound in early trading July 20 "on the back of concerns about supply disruptions from the Middle East, after further escalation in hostilities between Israel and Lebanon and Iran's refusal to negotiate on its nuclear program," said analysts in the Houston office of Raymond James & Associates Inc.

Valero Energy Corp. said July 20 it shut down for repairs its fluid catalytic cracking unit at its St. Charles, La., refinery. Company officials said they expect to take 20 days to make those repairs, which means the loss of 65,000 b/d in gasoline production. There will be no material impact on finished distillate (jet fuel and diesel) production, they said.

Despite high pump prices for retail gasoline, speed limits have been raised along hundreds of miles of interstate highways and freeways to 70 mph in Michigan and 80 mph in Texas. Other states are considering similar hikes. Each additional 5 mph above 60 mph increases fuel costs by 20¢/gal due to a 7-23% loss in fuel efficiency, according to a Department of Energy study.

Energy prices
The August contract for benchmark US sweet, light crudes traded at $71.65-74.11/bbl July 19 before closing at $72.66/bbl, down by 88¢ for the day to the lowest closing since June 29 on the New York Mercantile Exchange. The September contract lost 49¢ to $74.77/bbl.

On the US spot market, West Texas Intermediate was down 88¢ to $72.67/bbl. Gasoline led the retreat on NYMEX, with the August contract dropping 3.72¢ to $2.23/gal. Heating oil for the same month declined by 1.83¢ to $1.97/gal. However, the August natural gas contract jumped by 30.7¢ to $5.68/MMbtu.

In London, the September IPE contract for North Sea Brent crude declined by 46¢ to $73.90/bbl. Gas oil for August plummeted by $33.50 to $622/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes fell by $1.55 to $68.75/bbl on July 19.

Contact Sam Fletcher at [email protected].