MARKET WATCH: Energy prices fall as dollar strengthens

Energy prices retreated virtually across the board July 10 with losses in the crude and natural gas futures outstripping gains from the previous session as equity markets slumped and the US dollar strengthened among continued indications of a struggling economy.

The SIG Oil Exploration & Production Index and the Oil Service Index underperformed the broader markets, ending the day down 3.62% and 2%, respectively. Crude fell 2.3% and natural gas declining 4.9% in the New York market.

“Driven by Euro-zone concerns, [equity] markets closed in the red for the fourth consecutive trading session, with the Standard & Poor’s 500 Index falling 0.8%,” said analysts in the Houston office of Raymond James & Associates Inc. “Stocks opened with solid gains despite disappointing import-export data from China following news of a plan by European Union finance ministers to fast-track €30 billion for the recapitalization of Spanish banks. The markets later sank sharply as concerns over Italy's high bond yields took center stage.”

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “Despite yesterday’s slide brought on by dollar strength, crude oil prices have been trading in a fairly tight range—particularly Brent, which has oscillated between just below $98/bbl and just above $99.50/bbl. The trading range for West Texas Intermediate has been slightly wider, at $83.50-86/bbl.”

He said, “The main reason for this relative inactivity in crude oil markets specifically, as well as in markets generally, is that participants are adopting a wait-and-see approach ahead of today’s release of the Federal Open Market Committee’s minutes. We doubt that this will offer anything substantive to bolster market expectations of quantitative easing but do not doubt that the release could result in a knee-jerk reaction. However, should the Federal Reserve Bank eventually announce outright quantitative easing, we believe that Brent crude front-month prices would be one of the main beneficiaries of such a move.”

US inventories

The Energy Information Administration said July 11 commercial US crude inventories fell 4.7 million bbl to 378.2 million bbl in the week ended July 6, far more than the Wall Street consensus of a 1.4 million bbl drop. Yet crude stocks remain above average for this time of year. Gasoline inventories increased by 2.8 million bbl to 207.7 million bbl in the same period, exceeding analysts’ expectation of a 500,000 bbl gain. Both finished gasoline and blending components increased. Distillate fuel stocks increased 3.1 million bbl to 120.9 million bbl. That exceeded the market’s outlook for a 600,000 bbl increase but distillate inventories remain below average for the period.

Imports of crude into the US were down 148,000 b/d to 8.6 million b/d last week. In the 4 weeks through July 6, US imports averaged 9 million b/d, down by 229,000 b/d from the comparable period in 2011. Gasoline imports last week averaged 919,000 b/d while distillate fuel imports averaged 91,000 b/d.

The input of crude into US refineries increased 143,000 b/d to 15.8 million b/d with units operating at 92.7% of capacity. Gasoline production decreased to 9.3 million b/d last week while distillate fuel production declined to 4.7 million b/d.

Energy prices

The August contract for benchmark US light, sweet crudes fell $2.08 to $83.91/bbl July 10 on the New York Mercantile Exchange. The September contract dropped $2.07 to $84.30/bbl. On the US spot market, WTI at Cushing, Okla., was down $2.08 to $83.91/bbl.

Heating oil for August delivery lost 2.95¢ to $2.72/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 1.25¢ to $2.75/gal.

The August natural gas contract fell 14.6¢ to $2.74/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., regained 4¢ to $2.86/MMbtu.

In London, the August IPE contract for North Sea Brent lost $2.35 to $97.97/bbl. Gas oil for July continued to rise, up $1.75 to $875.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes declined 49¢ to $96.42/bbl.

Contact Sam Fletcher at samf@ogjonline.com.