MARKET WATCH: Energy prices rebound; crude inventories drop

Energy prices rebounded Aug. 18 as the value of the US dollar fell ahead of a large, unexpected drop in US crude inventories.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 19 -- Energy prices rebounded Aug. 18 as the value of the US dollar fell ahead of a large, unexpected drop in US crude inventories.

The Energy Information Administration said Aug. 19 commercial US inventories of benchmark crudes plunged a whopping 8.4 million bbl to 343.6 million bbl in the week ended Aug. 14. Gasoline stocks fell 2.1 million bbl to 209.8 million bbl in the same period. Distillate fuel inventories declined by 700,000 bbl to 161.6 million bbl.

Imports of crude into the US fell 1.4 million b/d to 8.1 million b/d last week. Input of crude into US refineries, however, increased 139,000 b/d to 14.5 million b/d with units operating at 84% of capacity. Gasoline production increased to 8.9 million b/d, while distillate fuel production decreased to 3.8 million b/d.

The American Petroleum Institute earlier reported an unexpected drop of 6.1 million bbl in crude stockpiles. The Wall Street consensus was for a 1.2 million bbl increase in crude, a 1 million bbl drop in gasoline, and a 700,000 bbl increase in distillate inventories.

Olivier Jakob at Petromatrix, Zug, Switzerland, noted, “The picture drawn by the API is…more or less continued draws in crude oil stocks since early May. Early May is also when the recent oil rally started and while many will still claim that the rally has nothing to do with fundamentals, the price action since May has a certain correlation to the picture of drawing crude stocks in the US. The absolute levels of stocks are still relatively high on an historical basis, so they do not justify a return to $140/bbl, but the drawing trend would justify an increasing premium over the last 3 months.”

The latest EIA report of an unexpected 8.4 million bbl drop in crude inventories would seem to support that same conclusion.

“Crude tracked the sentiment of the broader equity markets again [Aug. 18], rising in step with the S&P 500 index and bolstered by the dollar's decline against the euro, leading to its first gain in 3 days,” said analysts in the Houston office of Raymond James & Associates Inc. However, the price of crude was falling in early trading Aug. 19 “as Chinese stocks tumbled on concerns of tighter lending,” said Raymond James. But the bullish EIA report seemed likely to push crude prices back up.

In New Orleans, analysts at Pritchard Capital Partners LLC said the dollar index fell as the euro strengthened amid indications German investor confidence reached its highest level in 3-years. “US housing starts in July slid, and the Producer Price Index had a larger-than-expected decline, driving investors to purchase crude as an alternative investment,” they said. “China continues to invest in its energy needs as the China National Petroleum Corp. signed an oil trading, storage, and transportation agreement with Abu Dhabi National Oil Corp.; continued demand from China is positive for crude and increased demand from the other BRIC countries [Brazil, Russia, India, and China] would further support prices and 2010 demand forecasts.”

Meanwhile, natural gas prices fell for the sixth consecutive session to the lowest level since Aug. 19, 2002. “The price ratio between natural gas and crude is now at a historical high of 22.3-to-1, nearly doubling its 12.8-to-1 average over the past year,” said Pritchard Capital Partners.

Energy prices
The September contract for benchmark US light, sweet crudes rebounded $2.44 to $69.19/bbl Aug. 18 on the New York Mercantile Exchange. The October contract gained $2.28 to $71/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.44 to $69.19/bbl. Heating oil for September delivery increased 3.85¢ to $1.87/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month continued to climb, up 4.87¢ to $2/gal.

The September natural gas contract dropped 6.7¢ to $3.10/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $3.12/MMbtu.

In London, the October IPE contract for North Sea Brent crude gained $1.83 to $72.37/bbl. Gas oil for September regained $12.75 to $582.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes recouped $1.43 to $69.47/bbl on Aug. 18.

Contact Sam Fletcher at samf@ogjonline.com.

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