MARKET WATCH: Crude price bounces above $71/bbl

Energy prices rebounded June 17 with crude climbing above $71/bbl in the New York market after a bullish government report of bigger-than-expected changes in oil and product inventories.

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 18 -- Energy prices rebounded June 17 with crude climbing above $71/bbl in the New York market after a bullish government report of bigger-than-expected changes in oil and product inventories.

The US Energy Information Administration said commercial inventories of US benchmark light, sweet crudes fell 3.9 million bbl to 357.7 million bbl in the week ended June 12, more than the Wall Street consensus of a 2 million bbl decline. Gasoline stocks increased 3.4 million bbl to 205 million bbl in the same period, exceeding the consensus for a 600,000 bbl build. Distillate fuel inventories increased 300,000 bbl to 150 million bbl (OGJ Online, June 17, 2009).

“The largest deviation came in gasoline,” said analysts at Pritchard Capital Partners LLC, New Orleans. “The build in gasoline was due to a 25% jump in imports to 1.09 million b/d and refineries increasing gasoline production by 2% to 9.13 million b/d. Gasoline demand was the second-highest weekly demand number this year and roughly 100,000 b/d higher than a year ago. We expect gasoline inventories to remain at the low end of historical ranges.”

Meanwhile, they said, “The intraday reversal in crude was due to renewed US dollar weakness that was in part attributed to a story that two Japanese men were detained in Italy after being stopped crossing the Swiss border with a suitcase that contained $134 billion of US bonds. That the press can even report on the story means there are a lot of US government bonds in circulation, and some are betting commodities may offer a better return.”

In Houston, analysts at Raymond James & Associates Inc. said, “Energy stocks traded moderately lower yesterday despite increases in both crude and natural gas.” Crude was lower in early trading June 18 “even though the Movement for Emancipation of the Niger Delta (MEND) blew up a major pipeline with explosives in Nigeria,” they said.

Olivier Jakob at Petromatrix, Zug, Switzerland, said earlier concerns about the Chevron Corp. situation in the Nigerian Delta “was confirmed overnight that Chevron was shutting an additional 100,000 b/d of supply.” He said, “Some local newspapers are mentioning Chevron in the process of evacuating some 300 personnel from Escravos. The local source is not the most reliable and would require confirmation, but we nonetheless keep a Nigerian Delta risk premium as there are also local reports of a new attack on a Royal Dutch Shell PLC pipeline in Bayelsa.”

Jakob said, “Technically, the positive momentum on West Texas Intermediate is slowing down, but on an intraday basis it managed to rebound right on the lower ascending line and to close above $70/bbl. The ascending channel is still not invalidated and for yet another day the bears could not find enough follow-through selling.”

He said, “Due to the incapacity of WTI to break the $70/bbl support on a closing basis, combined with the fundamental support of more Nigerian disruption we will have a bias for more consolidation above $70/bbl.”

Energy prices
The July contract for benchmark US sweet, light crudes climbed 56¢ to $71.03/bbl June 17 on the New York Mercantile Exchange. The August contract advanced 54¢ to $71.70/bbl. On the US spot market, WTI at Cushing, Okla., was up 56¢ to $71.03/bbl. Heating oil for July delivery gained 3.8¢ to $1.86/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month dropped 3.85¢ to $2.03/gal.

The July natural gas contract bumped up 12.4¢ to $4.25/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 15.5¢ to $3.99/MMbtu. EIA reported the injection of 114 bcf of natural gas into US underground storage in the week ended June 12. That boosted working gas in storage to 2.56 tcf, up 622 bcf from year ago levels and 472 bcf above the 5-year average.

Pritchard Capital Partners said, “Over the past 2 months NYMEX natural gas front month has been unable to meaningfully break above the $4.30/MMbtu level. The market is quite divided in the direction of natural gas—some see the spread between crude and natural gas as too wide (oil has historically averaged 7 times the price of natural gas, currently 17 times), and others believe the abundance of natural gas will keep the commodity under pressure for the next 6-12 months if not longer. Supply data is supportive of the recent rally: latest EIA 914 [data] showed signs of production declines, natural gas rig count keeps falling, forward natural gas curve implies natural gas will trade above $6 by December, stock prices of E&P companies indicate natural gas is going higher, and finally the EIA power generation report showed natural gas is taking market share from coal in domestic power generation. These are the main signs that there are underpinnings to current rally in natural gas, but price reaction to the EIA release is important if natural gas is to maintain its current upward momentum.”

Raymond James analysts said, “Natural gas prices appear to be benefiting from those that believe that natural gas is cheap relative to crude given that the current ratio is 17:1, well above the historical norm of 7:1. We believe this reasoning is flawed, and bearish fundamentals continue to reinforce our expectations of massive shut-ins near the end of summer.”

In London, the August IPE contract for North Sea Brent crude gained 61¢ to $70.85/bbl. Gas oil for July lost $10 to $579/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped 31¢ to $69.37/bbl on June 17.

Contact Sam Fletcher at samf@ogjonline.com.

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