MARKET WATCH: Crude price inches higher

Sam Fletcher
Senior Writer

HOUSTON, June 20 -- Crude prices inched upward June 19 to the highest closing for a front-month contract on the New York commodity market since Sept. 1 as labor unions in Nigeria rejected government offers to avert a nationwide strike.

Nigerian oil worker unions earlier called for a general nationwide strike on June 20 to protest a government price hike on fuel for autos. Auto fuel is heavily subsidized in Nigeria, and the new administration wants to end that practice to free up cash. Workers also are protesting a hike in the value-added tax (VAT) and the sale of two refineries that employ union workers. The Nigerian government made some concessions to the unions, agreeing to reduce the fuel price hike but not fully reverse it, to suspend the VAT increase, and to increase salaries (OGJ Online, June 18, 2007).

"High fuel prices have caused riots in Nigeria, as unions deem government concessions to recent increases in fuel prices inadequate," said analysts in the Houston office of Raymond James & Associates Inc. "Though many Western businesses in Nigeria have been closed, no incremental supply interruptions from the eighth largest exporter have transpired as a result of the strikes." Raymond James analysts said expectations of an increase in US gasoline inventories put "slight pressure" on crude prices in early trading June 20.

Meanwhile, workers at the state-run oil company Petroleo Brasileiro SA have threatened a 5-day strike beginning July 5.

US inventories
The Energy Information Administration said June 20 that commercial US crude inventories jumped by 6.9 million bbl to 349.3 million bbl in the week ended June 15 after inching up by only 100,000 bbl the prior week. US gasoline stocks gained 1.8 million bbl to 203.3 million bbl in the latest week, but remained well below average for this time of year. "All of the increase was due to a build in gasoline blending components," EIA officials said. Distillate fuel inventories inched higher by 100,000 bbl to 122.7 million bbl. Propane and propylene inventories rose by 2.8 million bbl to 39.7 million bbl last week.

Imports of crude into the US increased by 650,000 b/d to 10.8 million b/d during that same period. Over the last 4 weeks, US crude imports have averaged 155,000 b/d less than the same period last year. The input of crude into US refineries fell by 349,000 b/d to 15 million b/d in the latest period, with refinery capacity down to 87.6%. However, gasoline production remained flat at 9.3 million b/d while distillate fuel production declined to 4 million b/d.

Energy prices
The July contract for benchmark US light, sweet crudes traded as high as $69.56/bbl before closing at $69.10/bbl, up 1¢ for the day June 19 on the New York Mercantile Exchange. That contract still is "within striking distance of the $70/bbl barrier," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. The August crude contract dropped 8¢ to $68.64/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 1¢ to $69.11/bbl. Heating oil for July delivery slipped by 0.74¢ to $2.03/gal on NYMEX. The July contract for reformulated blend stock for oxygenate blending (RBOB) lost 2.97¢ to $2.23/gal.

The July natural gas contract dropped 17.1¢ to $7.52/MMbtu on NYMEX. On the US spot market, natural gas at Henry Hub, La., fell 19.5¢ to $7.47/MMbtu. Raymond James analysts said gas prices were "up only slightly" in early trading June 20 but remained "hovering near a 3-week low." They said, "Expectations for mild near-term summer temperatures and the absence of an immediate hurricane threat have depressed prices in the last few trading sessions."

In London, the August IPE contract for North Sea Brent crude lost 34¢ to $71.84/bbl. The June gas oil contract dropped $2 to $626.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes climbed 33¢ to $68.23/bbl on June 19.

Contact Sam Fletcher at [email protected].