MARKET WATCH: Crude prices up on OPEC comments about supply

Futures prices for crude and petroleum products rebounded somewhat Aug. 2 after members of the Organization of Petroleum Exporting Countries said they see no need to put more oil into markets where crude supplies are sufficient and refining capacity is constrained.

Sam Fletcher
Senior Writer

HOUSTON, Aug. 3 -- Futures prices for crude and petroleum products rebounded somewhat Aug. 2 after members of the Organization of Petroleum Exporting Countries said they see no need to put more oil into markets where crude supplies are sufficient and refining capacity is constrained.

"OPEC blames high prices on refinery capacity constraints in consuming countries and international political tension regarding Iran's nuclear program, pointing to the fact that crude inventories are 12% higher than the 5-year range," said analysts in the Houston office of Raymond James & Associates Inc. "We remain bullish on crude, as stockpiles dropped 6.5 million bbl last week, the largest decline this year. Of note, [commercial] supplies [of benchmark light, sweet crudes] at Cushing, Okla., are at their lowest levels since 2005."

US Energy Sec. Sam Bodman has called on OPEC to increase production at its September meeting. Bodman said an oil price of $80/bbl would hurt the US economy. Meanwhile, the Oil Price Information Service reported Aug. 2 that US retail gasoline prices averaged $2.865/gal, the lowest level since late April.

Oil markets "took a breather" Aug. 2, "with the only noticeable changes being the narrowing of the backwardation [the progressive decline in monthly contract prices] in
reformulated blendstock for oxygenate blending (RBOB) gasoline," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. Similar to market conditions in the week ended July 27, the front-month benchmark crude contract on the New York market "will need continued support" Aug. 3 "to maintain the momentum on the weekly charts, with a required close of at least $77.50-78/bbl," Jakob said. Meanwhile, he said, crude open interest positions on the New York Mercantile Exchange are "providing no clear clues as it made strong gains" both on July 31 (an "up day") and Sept. 1 (a "down day"), Jakob said.

"Unless the trend reverses on product cracks it will be difficult for West Texas Intermediate to move much above $80/bbl as it would create refining economics which, like in Europe, will push either for lower capacity utilization or the move forward of refinery maintenance," said Jakob.

Energy prices
The September contract for benchmark US light, sweet crudes traded at $75.52-$77.02/bbl Aug. 2 before closing at $76.86/bbl, up 33¢ for the day on NYMEX. The October contract gained 34¢ to $76.55/bbl. On the US spot market, WTI at Cushing was up 33¢ to $76.87/bbl. Heating oil for September delivery increased 0.52¢ to $2.07/gal on NYMEX. The new front-month September contract for RBOB advanced by 0.66¢ to $2.04/gal.

The September natural gas contract dropped 24.6¢ to $6.11/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., increased by 3.5¢ to $6.30/MMbtu. Gas futures prices fell on NYMEX after the Energy Information Administration reported US storage inventories rose toward a record level, easing concerns of possible disruptions from storms and heat-driven demand, said analysts at Enerfax Daily. "Look for about 3.7 tcf in storage by November," they predicted. "Onshore production of gas has risen this year, and Gulf of Mexico production is little changed, helping to bolster supplies. Production from the Independence Hub, which began operations last month in the Gulf of Mexico, will add 1 bcfd to US supplies by yearend." August and September typically produce the greatest number of tropical storms in the Atlantic, but so far this year no hurricanes have developed.

Raymond James analysts blamed continued market fears of high US gas storage for the latest drop in natural gas prices. "The injection [of 77 bcf of natural gas into US underground storage in the week ended July 27] was especially disappointing for traders, as last week has historically been the hottest week of the year," said Raymond James analysts. "Fears that storage levels can only be reduced by a massive heat wave or hurricane-related supply disruptions have helped account for the recent volatility this past week, as gas prices have taken investors on a roller coaster ride, routinely rising or falling 3-4%."

In London, the September IPE contract for North Sea Brent crude lost 41¢ to $75.76/bbl. Gas oil for August dropped $7.50 to $648/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 reference crudes declined 87¢ to $72.17/bbl on Aug. 2.

Contact Sam Fletcher at samf@ogjonline.com.


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