MARKET WATCH: Reduced inventory, warmer weather increase oil, gas prices

Energy prices rose July 11 recouping much of their losses from the previous session. The front-month crude contract gained 2.4% in the New York market on a larger-than-expected drop in US inventory, and natural gas was up 2% on forecasts of hotter weather.

Minutes of the June 19-20 meeting of the Federal Open Market Committee, the policy-making arm of the US Federal Reserve, were released July 11, showing some members favor easing policy in a move toward full employment and stable prices. But others said action should be taken only if the economy worsens.

Meanwhile, the US Department of Labor reported 80,000 new jobs filled last week, fewer than analysts expected, with the unemployment rate still at 8.2%. Unemployment has remained above 8% for 41 consecutive months now.

Initial applications for unemployment benefits decreased by 26,000 to 350,000 last week—the lowest level since March 2008. Economists credited fewer layoffs among auto workers. However, they said most of that decline will be reversed later this quarter.

US manufacturing declined in June for the first time in the economic recovery, while consumer spending stalled in May.

“The Fed failed to inspire markets as it remained divided over whether current data is sufficient to warrant action,” said analysts in the Houston office of Raymond James & Associates Inc. “Across the pond, investors saw no clear signs of easing from the central bank, and the euro hit a 2-year low against the dollar. The overall uncertainty in Europe continues to push safe-haven German yields to record lows with the 2-year [bonds] now trading in negative territory.”

US inventories

The Energy Information Administration reported the injection of 33 bcf of natural gas into US underground storage in the week ended July 6, exceeding Wall Street’s consensus for a 27 bcf increase. That brought working gas in storage to 3.135 tcf, which is 548 bcf higher than last year at this time and 516 bcf above the 5-year average.

EIA earlier said commercial US crude inventories fell 4.7 million bbl to 378.2 million bbl last week, 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 (OGJ Online, July 11, 2012).

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, noted distillate and gasoline stocks were higher than expected. “This is something to watch because if these numbers don’t improve over the US driving season, it could spell weaker demand for crude in the future,” he said.

Raymond James analysts said, “The build in petroleum inventories was primarily driven by a 5.4% week-over-week decrease in total petroleum product demand. It is worth noting that refinery utilization reached its highest level since 2007 at 92.7%, up from 92% the previous week. The high utilization rate contributed to the fall in crude inventories and the increase in petroleum product inventories. Cushing, Okla., inventories experienced the largest week-over-week decrease of the year, falling 900,000 bbl. In aggregate, total days of supply increased 2.6 days but are 0.9 days below year-ago levels.”

Energy prices

The August contract for benchmark US sweet, light crudes regained $1.90 to $85.81/bbl July 11 on the New York Mercantile Exchange. The September contract recouped $1.89 to $86.19/bbl. On the US spot market, West Texas Intermediate at Cushing was up $1.90 to $85.81/bbl.

Heating oil for August delivery rose 4.23¢ to $2.76/gal on NYMEX. Reformulated stock for oxygenate blending for the same month increased 2.2¢ to $2.77/gal.

The August natural gas contract advanced by 11.6¢ to $2.85/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., fell 12¢ to $2.74/MMbtu.

In London, the August IPE contract for North Sea Brent was up $2.26 to $100.23/bbl. Gas oil for July lost $1.50 to $874/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 41¢ to $96.48/bbl.

Contact Sam Fletcher at samf@ogjonline.com.