MARKET WATCH: Economy pushes oil down; hot weather lifts gas prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 28 -- The front-month crude contract fell 1.9% in the biggest drop since July 1 in the New York market amid negative economic signs. However, natural gas prices continued to advance, up 1.4% on forecasts of hotter weather in the Midwest and along the East Coast.

Oil prices declined when the private research Conference Board reported its Consumer Confidence Index slipped to 50.4 in July, down from the revised 54.3 in June and below the 51 reading expected by economists (OGJ Online, July 27, 2010).

The report of low consumer confidence illustrates “that despite the efforts of the spin doctors, the macrodata is still showing that the road to recovery will be a long one,” said Olivier Jakob at Petromatrix, Zug, Switzerland. Moreover, he said, “Crude oil is suffering from fatigue of trading correlations, and it needs to regain some life of its own for traders to regain confidence that the oil markets are something else than an high-speed arbitrage generated by computers.”

US inventories
The Energy Information Administration said July 28 commercial US crude inventories jumped 7.3 million bbl to 360.8 million bbl in the week ended July 23. Wall Street’s consensus was for a 1.7 million bbl draw. Gasoline stocks inched up 100,000 bbl to 222.2 million bbl in the same period, below the 300,000 bbl increase expected by Wall Street. Distillate fuel inventories gained 900,000 bbl to 167.5 million bbl, short of the projected 2 million bbl increase.

Imports of crude into the US grew by 1.2 million b/d to 11.2 million b/d last week. In the 4 weeks through July 23, crude imports averaged 10 million b/d, up by 456,000 b/d from the comparable period a year ago.

Input of crude into US refineries increased only 55,000 b/d to 15.5 million b/d, however, with refineries operating at 90.6% of capacity. Gasoline production increased to 9.6 million b/d. Distillate fuel production decreased to 4.3 million b/d.

“Raincloud Bonnie forced 2.7 million bbl of lost crude supplies through precautionary shut-downs [of production in the Gulf of Mexico last week], but clouds have no impact on shipping lanes,” Jakob said. He noted the American Petroleum Institute earlier reported increased crude imports, with a 5 million bbl build in Gulf Coast inventories during the week. “If the overall US build in crude is only of 3 million bbl [based on the API report], it is because a draw of 5 million bbl in the discounted Petroleum Administration for Defense District 5 (West Coast) is offsetting a build of 8 million bbl in the PADDs (1-4) that count,” he said.

In its final report on Tropical Storm Bonnie, the Bureau of Ocean Energy Management, Regulation, and Enforcement said July 27 that workers had returned to all of the 634 manned platforms and the 39 mobile rigs in the gulf. However, 6.52% of usual gas production and 15.17% of normal oil production remained shut in at that time. BOE said all oil production was expected to be online July 28.

Energy prices
The September contract for benchmark US light, sweet crudes fell $1.48 to $77.50/bbl July 27 on the New York Mercantile Exchange. The October contract lost $1.47 to $77.90/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.48 to $77.50/bbl. Heating oil for August delivery dropped 4.32¢ to $2/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 4.26¢ to $2.06/gal.

The August natural gas contract continued climbing, up 6.3¢ to $4.68/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rebounded by 8¢ to $4.72/MMbtu, wiping out its loss in the previous session.

In London, the September IPE contract for North Sea Brent crude dropped $1.37 to $76.13/bbl. Gas oil for August fell $13.75 to $641.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 27¢ to $73.95/bbl.

Contact Sam Fletcher at [email protected].