MARKET WATCH: Crude price climbs above $71/bbl on NYMEX

Sam Fletcher
Senior Writer

HOUSTON, July 3 -- Crude prices continued climbing, closing above $71/bbl July 2 on the New York futures market just days ahead of the July 4 Independence holiday that traditionally is the peak driving day in the US.

"Similar to last year at this juncture, crude oil prices have gained renewed momentum, underpinned by tight US gasoline supplies heading into the peak July summer driving season as domestic refiners have continued to struggle in reaching historical utilization rates," said Robert S. Morris, Banc of America Securities LLC (BAS), New York. "At the same time, US gasoline demand has remained quite resilient with days of demand coverage nearly 6% below 1 year ago and 9% lower than the 5-year average."

Morris said, "US crude oil inventories, however, are at a 9-year high and the Organization of Petroleum Exporting Countries continues to indicate that high oil prices alone aren't enough to warrant an increase in production. Thus, our third quarter spot forecast [for an average price for West Texas Intermediate] remains $65/bbl although the 'optionality' could certainly be viewed as being more to the upside."

Analysts in the Houston office of Raymond James & Associates Inc. said, "We expect to see continued strength in oil prices as the geopolitical risk premium and concerns about refinery outages in the US prevail. In addition, the July 4 holiday marks the No. 1 driving day of the year. The American Automobile Association expects an impressive 41.1 million people to travel [July 4] with 34.5 million of them hitting the road and driving. Even $3/gal gasoline is not expected to curtail the travelers' plans."

Energy prices
The August contract for benchmark US sweet, light crudes climbed 41¢ to $71.09/bbl July 2 on the New York Mercantile Exchange. The September contract gained 58¢ to $71.56/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 41¢ to $71.10/bbl. The new front-month August contract for reformulated blend stock for oxygenate blending (RBOB) inched up 0.59¢ to $2.25/gal on NYMEX. Heating oil for the same month increased 1.94¢ to $2.05/gal.

The August natural gas contract slipped by 0.9¢ to $6.76/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 14.5¢ to $6.25/MMbtu. "Again, similar to last year at this juncture, widespread concerns have emerged regarding a sharp pullback in natural gas prices unless Mother Nature steps in to intervene," said BAS's Morris. "Absent a much-more-active-than-normal hurricane season or hotter-than-normal summer per initial, although recently tempered, forecasts, we believe there is significant downside risk to natural gas prices into the fall although perhaps not to the $4/MMbtu level (composite spot average) registered at the end of September last year."

In London, the August IPE contract for North Sea Brent crude advanced $1.22 to $72.63/bbl. The July gas oil contract dropped $1 to $625/tonne.

The average price for OPEC's basket of 11 benchmark crudes bumped up 76¢ to $68.64/bbl on July 2.

Contact Sam Fletcher at [email protected].