MARKET WATCH: Crude futures price tests $75/bbl mark

Sam Fletcher
Senior Writer

HOUSTON, July 18 -- The front-month contract for benchmark US crudes hit an 11-month high above $75/bbl in intraday trading July 17 in New York but was unable to maintain that momentum before falling back to just above $74/bbl.

Options on the August crude contract expired July 17, adding to the market's volatility. The dip in crude futures prices followed a decline in reformulated gasoline futures to the lowest price since June 13. The August contract for reformulated blend stock for oxygenate blending (RBOB) continued to decline July 17 for the fifth consecutive session. "But most importantly the gasoline crack continues to fall [off] of a cliff," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "The RBOB crack has lost now 12.6% in 6 days and is lower by the same amount vs. last year. With the heating oil crack also correcting down, the 3-2-1 refinery margin is now at its lowest level since February 2007 when West Texas Intermediate was trading $15/bbl lower," he said. The 3-2-1 spread is the most popular trading ratio for oil, gasoline, and distillate

Analysts in the Houston office of Raymond James & Associates Inc. reported crude prices increased in early trading July 18 on expectations that US crude inventories would decline as a result of increased refinery utilization and "the afterglow from several bullish global demand estimates recently published by various sources."

Meanwhile, Pasadena Refining Systems Inc. this week had an unplanned shutdown of a sulfur recovery unit at its 100,000 b/d refinery south of Houston. Pasadena Refining Systems is a joint venture between Brazil's national oil company Petroleos Brasileiro SA and California-based Astra Oil, a wholly owned subsidiary of Belgium's Compagnie Nationale a Portefeuille.

US inventories
The Energy Information Administration reported July 18 that commercial US crude inventories declined less than expected, down 500,000 bbl to 352.1 million bbl during the week ended July 13. Instead of building as anticipated, US gasoline inventories fell by 2.3 million bbl to 203.3 million bbl during the same period. Most of the decline was in finished gasoline inventories, but stocks of gasoline blending components also were down slightly, said EIA. Distillate fuel stocks dropped 200,000 bbl to 122.2 million bbl. Propane and propylene inventories increased by 1.5 million bbl to 47.8 million bbl during the week.

Imports of crude into the US increased by 350,000 b/d to 10.4 million b/d that week. The input of crude into US refineries increased by 89,000 b/d to 15.7 million b/d, with refineries operating at 91% of capacity. Nonetheless, gasoline production dipped to 9.2 million b/d. Distillate fuel production was down slightly to 4 million b/d.

Energy prices
The August contract for benchmark US light, sweet crudes hit an intraday high of $75.35/bbl July 17 on the New York Mercantile Exchange, the highest level since Aug. 25, 2006, when a front-month contract climbed to $76.38/bbl. The August crude contract closed at $74.02/bbl July 17, down 13¢ for the day. The September contract lost 12¢ to $74.11/bbl. On the US spot market, WTI at Cushing, Okla., was down 13¢ to $74.03/bbl. Heating oil for August delivery dropped 2.24¢ to $2.03/gal on NYMEX. The August RBOB contract fell 2.55¢ to $2.10/gal.

The August natural gas contract tumbled 6.9¢ to $6.31/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., increased by 4.5¢ to $6.30/MMbtu. Natural gas prices were down in pre-market trading on July 18, "trending to lows not seen since January," said Raymond James analysts. "Year-over-year storage differentials continue to shrink and supplies continue to build. Recent data points indicate domestic production is increasing and LNG imports continue to arrive," they said.

In London, the new front-month September IPE contract for North Sea Brent crude dropped 76¢ to $75.53/bbl. Gas oil for August lost $8.50 to $649/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 11 benchmark crudes declined by 93¢ to $71.89/bbl on July 17.

Contact Sam Fletcher at samf@ogjonline.com.