MARKET WATCH: Crude oil price continues to fall

The new front-month August contract for crude continued its fall June 23 in the New York market as the Energy Information Administration reported an unexpected build in oil inventories and US sales of new homes fell to a record low in May, down 32.7% from April when the $8,000 federal tax credit expired.

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 24 -- The new front-month August contract for crude continued its fall June 23 in the New York market as the Energy Information Administration reported an unexpected build in oil inventories and US sales of new homes fell to a record low in May, down 32.7% from April when the $8,000 federal tax credit expired.

“New home purchases plummeted to an annual rate of 300,000, while the economists were expecting that purchases would drop only 19% to an annual rate of 410,000,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston.

A slower demand growth projection by the International Energy Agency in Paris helped undercut crude prices. “The IEA now estimates that the rate of growth in the world’s oil consumption would diminish from 1.5% in 2010 to 1% in 2015. Despite a bearish assault from all corners, prices held above $76/bbl as the Federal Reserve System renewed its pledge to keep interest rates unchanged to maintain the economic recovery,” Sharma said.

In Houston, analysts at Raymond James & Associates Inc. reported, “Natural gas ended the day up 1% after several meteorologists projected that a cluster of thunderstorms in the Caribbean Sea have a moderate chance of becoming a tropical storm. The broader market ended the day flat despite falling 70-plus points, then rising 70-plus points during the session.”

In other news, the Wall Street Journal reported BP PLC and other producers were required to base deepwater spill response plans in the Gulf of Mexico on 6-year-old projections by the US Minerals Management Services that a much larger spill than the Macondo blowout was unlikely to reach US shores.

“The government models, which oil companies are required to use but have not been updated since 2004, assumed that most of the oil would rapidly evaporate or get broken up by waves or weather,” said Raymond James analysts, citing a June 24 WSJ report. However, they said, “Oil has hit 171 miles of shoreline in southern Louisiana, Mississippi, Alabama, and northern Florida. Further, government models don't address how oil released a mile below the surface would behave—despite years of concern among government scientists and oil companies about deepwater spills.”

The MMS “oil spill risk analysis” simulated gulf spill trajectories and timelines over 3, 10, and 30 days. According to that analysis, the Macondo spill would have only an 11% chance of landfall in Plaquemines Parish, La., after 30 days. However, Raymond James noted the first tar balls reached Plaquemines 22 days after the blowout.

US inventories
The Energy Information Administration reported June 24 the injection of 81 bcf of natural gas into US underground storage in the week ended June 18, raising the amount of working gas in storage above 2.6 tcf. Gas stocks are 14 bcf below year-ago level but 309 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories increased 2 million bbl to 365.1 million bbl in that same week. Gasoline stocks decreased by 800,000 bbl to 217.6 million bbl, while distillate fuel inventories increased 300,000 bbl to 156.9 million bbl (OGJ Online, June 23, 2010).

Energy prices
The new front-month August contract for benchmark US light, sweet crudes lost $1.50 to $76.35/bbl June 23 on the New York Mercantile Exchange. The September contract dropped $1.63 to $77.03/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.73 to $75.48/bbl. Heating oil for July delivery declined 4.45¢ to $2.07/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month fell 5.12¢ to $2.08/gal.

The July natural gas contract gained 4.8¢ to $4.80/MMbtu on NYMEX. It was the first time in 4 days the contract’s price had risen, Sharma said. On the US spot market, gas at Henry Hub, La., was up 2¢ to $4.88/MMbtu.

In London, the August IPE contract for North Sea Brent crude lost $1.77 to $76.27/bbl. Gas oil for July fell $24 to $658.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped $1.03 to $74.08/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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