MARKET WATCH: Crude hits intraday high price before losing gains

Energy prices fell Aug. 1, essentially wiping out gains for crude and petroleum products in the previous session, but not before the September contract for benchmark US oil set an all-time high of $78.77/bbl in early intraday trade on the New York Mercantile Exchange.

Sam Fletcher
Senior Writer

HOUSTON, Aug. 2 -- Energy prices fell Aug. 1, essentially wiping out gains for crude and petroleum products in the previous session, but not before the September contract for benchmark US oil set an all-time high of $78.77/bbl in early intraday trade on the New York Mercantile Exchange.

Prices were pulled down from a July 31 record high closing for crude by an Energy Information Administration report of a larger-than-expected draw on commercial US crude inventories and unexpected large builds in gasoline and distillate fuel stocks in the week ended July 27 (OGJ Online, Aug. 1, 2007).

"The Department of Energy's inventory statistics were negative for refiners," said Eitan Bernstein of Friedman, Billings, Ramsey & Co. Inc., Arlington, Va. "Gasoline inventories rose by 600,000 bbl, above the consensus expectation for a 100,000 bbl build. Distillate inventories rose by 2.8 million bbl, well above the consensus expectation for a 1.3 million bbl build. Crude oil inventories fell by 6.5 million bbl, well above the consensus expectation for a 1.1 million bbl drawdown."

Crude inventories at the key pipeline delivery center in Cushing, Okla., have fallen for 10 consecutive weeks. Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "The weekly statistics were a reminder that, if underlying demand is not strong enough, a crude oil draw translates into a product build. In July for total products and crude combined, there was a build of 8 million bbl. Gasoline production reached a new record high and is 400,000 b/d higher than the same week last year, while middle distillate production is higher by 490,000 b/d. Refinery runs have [increased] and at the current levels of runs and of imports would cause further severe crude drawdowns."

However, he cautioned, "We are starting from US crude stock levels at multiyear highs, and it remains to be seen how long runs can be maintained at the levels of last week when margins are at fall levels and product demand remains moribund."

Jakob also pointed out, "Previous [downward crude price] corrections have been brought back to maintain a positive momentum, so it would be premature to call the end of the rally on a 1-day action, but the reversal risks are increasing."

On the other hand, analysts in the Houston office of Raymond James & Associates Inc. observed, "With the refinery utilization level reaching the 93.6% level for the first time in almost 2 years, look for crude inventories to decrease in the coming weeks from their current bloated state. However, with the gasoline inventory situation looking better and the fact that we are now over half way through the summer driving season, some traders are looking for crude to fall from its current price levels."

Energy prices
The September contract for benchmark US light, sweet crudes hit an intraday high of $78.77/bbl before giving up more than it gained in the previous session. It closed at $76.53/bbl on Aug. 1, down $1.68 for the day on NYMEX. The October contract surrendered its previous gain of $1.39 to fall back to $76.21/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.68 to $76.54/bbl. Heating oil for September delivery dropped 5.38¢ to $2.07/gal on NYMEX. The new front-month September contract for reformulated blend stock for oxygenate blending (RBOB) fell 7.63¢ to $2.03/gal.

The September natural gas contract regained most of its losses from the previous session, however, up 16.1¢ to $6.35/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 17¢ to $6.27/MMbtu. Meanwhile, EIA reported the injection of 77 bcf of natural gas into US underground storage in the week ended July 27. That was below the consensus of Wall Street analysts and compared with an injection of 71 bcf the previous week, including a 7 bcf reclassification, and with an injection of 19 bcf during the same period last year. US natural gas storage now exceeds 2.8 tcf, up 68 bcf from year-ago levels and 410 bcf above the 5-year average.

In London, the September IPE contract for North Sea Brent crude lost $1.70 to $75.35/bbl. Gas oil for August inched up 75¢ to $655.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 reference crudes gained 64¢ to $73.04/bbl on Aug. 1.

Contact Sam Fletcher at samf@ogjonline.com

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