MARKET WATCH: Crude prices climb to 9-month high
Sam Fletcher
Senior Writer
HOUSTON, June 29 -- The front-month crude contract shot to a 9-month high above $70/bbl in intraday trading June 28 on the New York futures market due to declines in US gasoline and distillate fuel supplies even with an increase in refining capacity.
The Energy Information Administration earlier reported that US gasoline inventories dropped 700,000 bbl to 202.6 million bbl in the week ended June 22, vs. the consensus expectation of a 1 million-bbl increase. It was the first draw on gasoline inventories in 8 weeks (OGJ Online, June 28, 2007). Distillate stocks fell 2.3 million bbl to 120.4 million bbl against the consensus expectation of a 600,000 bbl build.
The August contract for benchmark US light, sweet crudes was again above $70/bbl in early trading June 29, "hitting nearly 10-month highs on concerns about falling gasoline inventories," said analysts in the Houston office of Raymond James & Associates Inc. "Supporting crude this morning was news from Iraq that a pipeline linking the southern oil fields to the Baghdad refinery was damaged by a bomb explosion yesterday and was still ablaze this morning," said Raymond James analysts. "While the damaged pipeline shouldn't significantly hinder Iraqi supplies, it underscores the tense environment that contributes to the geopolitical risk premium in crude prices. Additionally, while US crude inventories on the whole have continued to rise, increasing refinery utilization rates have decreased the huge crude stockpiles in Cushing, Okla. As these stockpiles continue to fall, West Texas Intermediate prices may soon exceed prices of Brent crude as they have historically done." In recent weeks, North Sea Brent crude has sold at an unusual premium to WTI.
Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "No other energy commodity was able to follow the strong pace of WTI. Individual [in June 28 trading] and refining cracks continued to erode, and the Brent premium to WTI corrected sharply lower." He, too, anticipated volatile trading June 29 due to "an oil triple witching with the [simultaneous] end of the week, end of the quarter, and expiry of the July product contracts."
Energy prices
The August crude contract traded as high as $70.52/bbl June 28 on the New York Mercantile Exchange before closing at $69.57/bbl, up 60¢ for the day. The September contract gained 58¢ to $69.86/bbl. On the US spot market, WTI at Cushing was up 59¢ to $69.57/bbl. The July contract for reformulated blend stock for oxygenate blending (RBOB) increased 1.21¢ to $2.27/gal on NYMEX. However, heating oil for the same month lost 0.63¢, although its closing price essentially was unchanged at $2.02/gal.
The August natural gas contract dropped 42.8¢ to $6.66/MMbtu on June 28 on NYMEX. On the US spot market, natural gas at Henry Hub, La., inched up 0.5¢ to $6.77/MMbtu. "EIA reported an injection of 99 bcf [of gas into US underground storage last week], well above the street expectations of 83 bcf, causing a large natural gas sell-off during which natural gas prices fell over 6%," said Raymond James analysts. "Looking into the next couple of weeks, there is little positive news to support current prices, as the 2-week outlook from the US Climate Prediction Center forecasts below-normal temperatures for the majority of the US."
Analysts at Enerfax Daily said, "Lack of sustained hot weather has been the main driver behind a slide in natural gas prices that started June 18. Prices have fallen 13% this month."
In London, the August IPE contract for North Sea Brent crude dipped by 1¢ to $70.52/bbl. Gas oil for July inched up by 75¢ to $626.50/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes gained 30¢ to $67.58/bbl on June 28.
Contact Sam Fletcher at [email protected]