MARKET WATCH: Energy prices rise as traders adjust market positions

Sam Fletcher
Senior Writer

HOUSTON, Aug. 8 -- Crude prices recovered on Aug. 7 a small portion of the loss from the previous session's 5% plunge as traders covered long positions ahead of a government report on US petroleum inventories.

But that "respite is providing no clear directional clue" to energy market trends, said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

The US Department of Energy's Energy Information Administration generally was expected to report another drop in oil inventories, as well as increases in both refinery activity and gasoline supplies. Energy prices also got a boost from late-day reports that ConocoPhillips shut down gasoline-producing units at its 231,500 b/d Bayway refinery in Linden, NJ, and at its 188,670 b/d Trainer, Pa., refinery.

"Demand for gasoline [was] expected to be down week-over-week for one of the first times this summer driving season, perhaps indicating the peak of the summer driving season," said analysts in the Houston office of Raymond James & Associates Inc. before EIA released its report. "This could partly explain the recent sell-off in oil, as we are approaching a historically low seasonal point for oil prices," they said. "However, economic concerns probably had something to with it, too."

US inventories
EIA reported Aug. 8 that commercial US crude inventories fell by 4.1 million bbl to 340.4 million bbl during the week ended Aug. 3. That exceeded the 2.8 million bbl draw that was the consensus of Wall Street analysts. Gasoline stocks dropped 1.7 million bbl to 203 million bbl with declines in both finished gasoline and gasoline-blending components. Analysts were expecting a build of 800,000 bbl, which still would have left gasoline inventories below average for this time of year. Distillate fuel inventories rose by 1 million bbl to 127.5 million bbl, vs. an expected increase of 1.8 million bbl. Propane and propylene inventories increased by 500,000 bbl to 50.4 million bbl.

Imports of crude into the US decreased by 167,000 b/d to 10 million b/d during the same week. The input of crude into US refineries was down 419,000 b/d to 15.8 million b/d with refineries operating at 91.3% of capacity, down from 93.6% the prior week. Gasoline production dropped to 9.2 million b/d and distillate fuel production declined to 4.1 million b/d.

Energy prices
The September contract for benchmark US light, sweet crudes regained 36¢ to $72.42/bbl Aug. 7 on the New York Mercantile Exchange. The October contract recouped 41¢ to $72.38/bbl. On the US spot market, West Texas Intermediate was up 36¢ to $72.43/bbl. Heating oil for September delivery bumped up by 2.48¢ to $1.96/gal on NYMEX. The September contract for reformulated blend stock for oxygenate blending (RBOB) gained 1.83¢ to $1.94/gal.

The September natural gas contract dipped 0.7¢ to $6.20/MMbtu on NYMEX. On the US spot market, however, natural gas at Henry Hub, La., jumped 29.5¢ to $6.39/MMbtu. "As in the past few days, natural gas [futures prices] will likely remain relatively flat in the next few days, as hotter temperatures will likely be too little, too late, due to current high storage levels," said Raymond James analysts. "Moreover, European LNG demand will likely subside somewhat in the immediate future as the largest field in Britain, the Britannia, has resumed normal operations and has ramped up to full production. This has decreased the price of UK natural gas to $5.25/Mcf, likely causing incremental LNG shipments to find their way to the US market."

In London, the September IPE contract for North Sea Brent crude increased 63¢ at $71.80/bbl. The August gas oil contract dropped $7.75 to $615/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 reference crudes fell $1.97 to $68.27/bbl on Aug. 7.

Contact Sam Fletcher at samf@ogjonline.com.