MARKET WATCH: Crude, product prices rebound; oil tops $61/bbl

After consecutive losses in the three previous sessions, crude and petroleum product prices rebounded July 15 with oil topping $61/bbl on the New York market, following a report of a bigger-than-expected drop in US crude inventories.

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 16 -- After consecutive losses in the three previous sessions, crude and petroleum product prices rebounded July 15 with oil topping $61/bbl on the New York market, following a report of a bigger-than-expected drop in US crude inventories.

Benchmark US crude was “recently resisting the influence of exogenous markets but the continued rebound in equities was much too strong to be ignored, especially since it was associated with further weakness on the dollar index,” said Olivier Jakob at Petromatrix in Zug, Switzerland.

Natural gas bucked the upward trend for other commodities July 15, erasing much of the big gain from the previous session, falling more than 4%. “We would expect continued weakness for natural gas prices in the face of bloated domestic inventories over the next few months,” said analysts in the Houston office of Raymond James & Associates Inc.

In New Orleans, analysts at Pritchard Capital Partners LLC said, “The problem for natural gas remains concern over LNG as a recent report suggested that by 2020 the US would receive 10 bcfd of imports, up from the 1-2 bcfd the US currently receives.”

The Energy Information Administration, under the Department of Energy, reported commercial crude inventories fell 2.8 million bbl to 344.5 million bbl during the week ended July 10. Gasoline stocks gained 1.5 million bbl to 214.6 million bbl, and distillate fuel inventories increased 600,000 bbl to 159.3 million bbl (OGJ Online, July 15, 2009).

Analysts noted gasoline inventories built at the slowest pace in 5 weeks; yet distillate inventories remain bloated, and overall stocks remain at the high end of the historic range.

Input of crude into US refining increased 139,000 b/d to 15.1 million b/d, with units operating at 87.9% of capacity. “Crude runs climbed to a high for the year last week despite weak demand as refiners geared up unexpectedly,” said Pritchard Capital analysts.

They reported, “Discussions from market participants indicate that some think the reflation trade may be back on as the US dollar weakened against most currencies and there was strength across commodities. Further support for the reflation trade came from Chinese gross domestic product that came in at 7.9% vs. a forecast for 7.8%. The higher rate of growth than forecast should provide support for crude and commodities, and bolster the current rally in crude oil; however, there were ‘whispers’ of a GDP number closer to 9%.”

Jakob observed, “If China can grow at basically 8% when the rest of the world is into one of its deepest recessions, what will it be when consumer demand in the West starts to resurface? In April and May, Chinese crude oil runs were 650,000 b/d higher than a year ago (up 800,000 b/d in May), and as we have been writing before, in the oil markets as in the economy one needs to look East not West.

Energy prices
The August contract for benchmark US light, sweet crudes jumped $2.02 to $61.54/bbl July 15 on the New York Mercantile Exchange. The September contract escalated by $2.19 to $62.58/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.02 to $61.54/bbl. Heating oil for August delivery gained 7.02¢ to $1.58/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month increased 6.15¢ to $1.71/gal.

However, the August contract for natural gas dropped 14.6¢ to $3.28/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 1¢ to $3.30/MMbtu.

In London, the August IPE contract for North Sea Brent climbed by $2.23 to $63.09/bbl, widening its lead over the front-month benchmark US crude. The Brent contract is to expire at the end of business July 16. Gas oil for August gained $11.50 to $502.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 86¢ to $61.73/bbl—also exceeding the NYMEX contract price—on July 15.

Contact Sam Fletcher at samf@ogjonline.com.

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