MARKET WATCH: Energy prices slip with lower economic indicators

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 15 -- Energy prices slipped lower July 14 in the New York market, mostly following the broader equity market down as economic indicators pointed toward a slowing recovery.

“Oil prices finished the day down slightly despite rallying to nearly $78/bbl on a bullish Department of Energy report that showed total petroleum inventories falling by 1.8 million bbl in contrast to Wall Street's 500,000 bbl build estimate. After a slew of bearish economic data, energy stocks barely outperformed the broader markets,” said analysts in the Houston office of Raymond James & Associates Inc. “Gas prices also trailed lower on the news, finishing the day down 1%.”

The price of crude retreated “on the Federal Reserve’s softened outlook for the US economy,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “Despite a 12 million bbl draw over the last 3 weeks, inventories remain 7% above the 5-year average for the period, limiting any sharp appreciation in prices.”

US inventories
DOE’s Energy Information Administration said commercial US crude inventories fell 5.1 million bbl to 353.1 million bbl in the week ended July 9, far exceeding the Wall Street consensus for a 1.5 million bbl draw. Gasoline stocks climbed 1.6 million bbl to 221 million bbl in the same period. Distillate fuel inventories gained 2.9 million bbl to 162.6 million bbl (OGJ Online, July 14, 2010).

EIA reported the injection of 78 bcf of natural gas into US underground storage in the same week. That brought the working gas in storage to 2.8 tcf. Stocks now are 33 bcf below the comparable period in 2009 and 274 bcf above the 5-year average

The US still is not drawing down its petroleum stocks overall, said Olivier Jakob at Petromatrix, Zug, Switzerland. “Since the end of March, the US has built 62 million bbl of petroleum stocks,” he said. “Stocks of crude in Cushing, Okla., were marginally higher and are stabilizing around 35 million bbl. Refinery runs in Petroleum Administration for Defense District 2 (in the Midwest, including Cushing) are high, but they should start to approach their seasonal peak and that should work against strong crude stock draws in the Midwest as Canadian imports remain on the high side.”

Most of the reported crude stock draw for the latest week was on the US Gulf Coast. “We can not exclude that some if it was linked to delays related to Hurricane Alex,” said Jakob. “US crude oil imports were 132,000 b/d lower than the previous week. Crude imports from Canada were slightly higher, while there were some lower discharges from Saudi Arabia, Russia, and Venezuela.”

Jakob reported, “US refinery capacity utilization was strong at 90.5%, which is the highest weekly rate since the end of 2007. The 2010 hurricane season has been announced as a severe one and with the shallow contango on crude oil, refineries are transforming crude oil into products at an increasing rate. This results in a build of product stocks and means that US refiners will be fully prepared for a hurricane disruption (i.e. hurricane price spikes will have to be sold when they occur as refiners have already anticipated potential disruptions).” If hurricanes do not disrupt Gulf of Mexico oil supplies as anticipated, he said, “Refiners will need to cut refinery runs in the Fall due to an oversupply of products.”

US gasoline stocks increased “and for the season are at the highest level since 1998. There is about 7 weeks left of seasonally strong gasoline demand and with the current stock base and refinery runs, it is difficult to see how this driving season could be problematic,” Jakob said.

In other news, he said, “Chinese refinery runs in June are reported at a new record high and [up] 830,000 b/d vs. a year ago. The increase in refining runs is lower than the increase in crude imports and reenforces our view that the data for May-June needs to be averaged out. Meanwhile, Chinese crude oil production is higher by 230,000 b/d vs. a year ago. Chinese gross domestic product for the second quarter was [up] 10.3% year-over-year, slightly below expectations and below the 11.9% in the first quarter.”

Energy prices
The August contract for benchmark US sweet, light crudes slipped 11¢ to $77.04/bbl July 14 on the New York Mercantile Exchange. The September contract lost 14¢ to $77.45/bbl. On the US spot market, West Texas Intermediate at Cushing was down 11¢ to $77.04/bbl. Heating oil for August delivery declined 1.13¢ to $2.04/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 1.56¢ to $2.07/gal.

The August natural gas contract dropped 4.8¢ to $4.31/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 0.5¢ to $4.46/MMbtu.

In London, the August IPE contract for North Sea Brent crude gained 12¢ to $76.77/bbl. Near-term Brent contracts were priced higher than further-out contracts in a condition known as backwardation, said Raymond James analysts. Gas oil for August dropped $1.50 to $651.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes climbed $1.35 to $73.93/bbl.

Contact Sam Fletcher at [email protected].