MARKET WATCH: Crude price slips, but remains above $82/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 5 -- Following a strong rally early this week, crude prices slipped lower in the New York market Aug. 4 but held above $82/bbl as the dollar advanced against the euro for the first time in 3 days.

“Early gains on reports of increased private-sector employment and better-than-expected growth in the US non-manufacturing sector were offset by an unexpected increase in gasoline inventories and a strengthening dollar,” said analysts in the Houston office of Raymond James & Associates Inc.

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said crude remained above $82/bbl “on slowly but steadily increasing global demand.” He said, “Better than expected expansion of the US service industry also gave a helping hand to keep prices propped up. Instead of dropping to 53 as per the economists’ expectations, the Institute for Supply Management index of US services industry rose to 54.3 last month from 53.8 in June.”

The Energy Information Administration said commercial US crude inventories fell 2.8 million bbl to 358 million bbl in the week ended July 30, below Wall Street’s consensus for a 1.7 million bbl drop. Gasoline stocks gained 700,000 bbl to 223 million despite traders’ expectations for a 1 million bbl loss. Distillate fuel inventories climbed 2.2 million bbl to 169.7 million bbl in that same period, surpassing a consensus for a 1 million bbl build (OGJ Online, Aug. 4, 2010).

EIA reported Aug. 5 the injection of 29 bcf of natural gas into US underground storage during that same period. The input boosted working gas in storage to 2.95 tcf. That’s down by 132 bcf from a year ago in the same period but 221 bcf above the 5-year average.

The price of the front-month natural gas contract increased 2.1% Aug. 4 on continuing weather support. “Hotter than normal temperatures have been steadily chipping away the storage surplus to the 5-year average and have been widening the year-over-year deficit. The surplus to the 5-year average has shrunk from 18.8% at the beginning of May to 8.9% in the week ending July 23, while year-over-year deficit has widened to 94 bcf,” Sharma said.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Total US petroleum stocks are now only 2.2 million bbl short of the record high set in September 1990 and have built 83 million bbl since the end of March.” Visible stocks of crude and clean petroleum products are at “a new multi-year high” at “118 million bbl over levels seen in the same week in 2008,” Jakob said. “Stocks of gasoline and distillates are reaching a new high and in our opinion are getting closer and closer to the maximum capacity filled-up level.”

He reported, “Heating oil has been a complex-leader (higher cracks and moving to premium over gasoline) in the recent flat price rally, but stocks of distillates continue to build and are now just 2 million bbl short of the multi-year highs seen in early October of last year. Jakob added, “It is not only stocks of low-sulfur diesel that are building but stocks of heating oil as well, and the US is already ready for the early winter requirements. US refineries are not at risk to distillate exports but are rather in need of such exports. Any reduction of US distillate exports would quickly bring a reduction of refinery runs.”

In other news, Western Refining Inc., El Paso, said Aug. 5 it is suspending refining operations at its 70,000 b/d Yorktown, Va., refinery due to the poor outlook for East Coast refining margins. Western will take a $13 million noncash charge in the second half of this year as a result of this action “We view this as a positive for the stock, since this refinery has lost over $50 million the past 4 quarters,” said Jacques H. Rousseau, analyst at RBC Capital Markets under the Royal Bank of Canada. “We maintain our cautious outlook for the refining sector due to rising supply in the third quarter (higher production and increased imports) and an overall high level of spare global capacity.”

Frontier Oil Corp. officials said the crude unit at the company’s 52,000-b/d Cheyenne, Wyo., refinery, will likely be down 2-3 weeks, reducing its third quarter production, following a July 28 fire that caused no injuries to workers. Frontier also said Canadian crude oil differentials have improved enough that coking economics are once again attractive at both of its refineries.

Energy prices
Both the September and October contracts for benchmark US light, sweet crudes dipped by 8¢ to $82.47/bbl and $82.91/bbl, respectively, Aug. 4 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate at Cushing, Okla., also was down 8¢ to $82.47/bbl. Heating oil for September delivery on NYMEX inched up 0.22¢ but its closing price essentially was unchanged at a rounded $2.20/gal. Reformulated blend stock for oxygenate blending for the same month decreased by 1.85¢ to $2.18/gal.

The September natural gas contract gained 9.8¢ to $4.74/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 5¢ to $4.76/MMbtu.

In London, the September IPE contract for North Sea Brent crude lost 48¢ to $82.20/bbl. Gas oil for August increased $2.50 to $693.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 47¢ to $78.88/bbl.

Contact Sam Fletcher at [email protected].