MARKET WATCH: Crude price rebounds above $75/bbl

Sam Fletcher
Senior Writer

HOUSTON, July 26 -- The September contract for benchmark US crude rebounded July 25, recouping in 1 day virtually all of its losses over the previous three trading sessions.

"After shrugging off a bearish inventories report, crude rallied 3% [July 25] and briefly surpassed the $77/bbl level this morning," said analysts July 26 in the Houston office of Raymond James & Associates Inc. The front-month crude price is now roughly $2 away from an all-time high on the New York Mercantile Exchange, they said.

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "There is evidently enough investment flows to go after the historic highs [in the price for West Texas Intermediate] but the relative value environment, apart from the WTI backwardation [in which a futures contract trades at a higher price as it approaches expiration], is worse than last week. The dollar index also had a strong bounce [July 25] and if it proves to be more than a dead cat bounce, it will also add to the list of negatives vs. last week."

One reason for the bullish reversal in market sentiment is a July 25 report of an increase in US refinery utilization, "which has reached a level not seen since September," Raymond James analysts said. "Also supporting crude prices this morning is news that ExxonMobil [Corp.] had to close the majority of UK's largest oil refinery after a fire in a steam plant. The refinery processes approximately 300,000 b/d. No word yet on how long the plant could be down," they said.

The Energy Information Administration said US refineries operated at 91.7% of capacity during the week ended July 20. US gasoline production rose to 9.3 million b/d, while imports of gasoline into the US increased to 1.7 million b/d—"the highest weekly average ever," EIA reported. Because of strong demand, however, US gasoline inventories increased only 800,000 bbl to 204.1 million bbl in the same period, still below average for this time of year. Commercial US crude stocks dropped 1.1 million bbl to 351 million bbl in the same week. Distillate fuel inventories rose 1.5 million bbl to 123.7 million bbl (OGJ Online, July 25, 2007).

The record high level of gasoline imports created a counter-seasonal build in gasoline inventories, said Paul Horsnell at Barclays Capital Inc., London. "While 700,000 bbl of the overall 800,000 bbl gasoline build was accounted for by the West Coast, and East Coast inventories fell for the first time in 6 weeks, the key driver was the 1.652 million b/d of [gasoline] imports during the week, a new all-time high. Total distillate inventories rose by 1.5 million bbl and stayed below their 5-year average, but within that, diesel inventories fell and heating oil inventories rose by 2.9 million bbl," he said.

Energy prices
The September contract for benchmark US light, sweet crudes traded at $73.10-76.38/bbl July 25 before closing at $75.88/bbl, up $2.32 for the day on the New York Mercantile Exchange. The October contract jumped by $2.07 to $75.46/bbl. On the US spot market, WTI at Cushing was up $2.47 to $75.99/bbl. Heating oil for August delivery gained 3.5¢ to $2.07/gal on NYMEX. The August contract for reformulated blend stock for oxygenate blending (RBOB) advanced by 4.02¢ to $2.09/gal.

The August natural gas contract escalated by 6.2¢ to $5.93/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., lost 6.5¢ to $5.60/MMbtu. The EIA reported July 26 the injection of 71 bcf of natural gas into US underground storage in the week ended July 20. That was within the consensus of Wall Street analysts and compared with the injection of 65 bcf in the prior week and the withdrawal of 7 bcf during the same period in 2006. US gas storage is now at 2.76 tcf, up by 6 bcf from year-ago levels and 384 bcf above the 5-year average.

In London, the September IPE contract for North Sea Brent crude increased by $1.24 to $76.32/bbl. Gas oil for August lost $2.50 to $637/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 reference crudes dropped 37¢ to $71.57/bbl.

Contact Sam Fletcher at samf@ogjonline.com.