MARKET WATCH: Crude oil rebounds above $77/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 14 -- Oil prices rebounded July 13, wiping out losses from the previous session as the front-month crude contract topped $77/bbl in closing. Natural gas, meanwhile, continued its downward slide in the New York futures market.

“Oil prices followed the broader market higher (with the Dow Jones Industrial Average up 1.4%) and jumped 2.9% yesterday on the back of bullish earnings news and increased guidance from the aluminum giant, Alcoa Inc. Nevertheless, energy companies once again underperformed the broader market,” said analysts in the Houston office of Raymond James & Associates Inc.

“The dollar’s 0.9% decline against the euro provided an additional boost to the prices,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. He noted the International Energy Agency in Paris projected a 1.3 million b/d increase in 2011 global oil demand with almost 30% of next year’s demand growth to come from China. IEA expects a 29.2 million b/d call on crude produced by the Organization of Petroleum Exporting Countries next year, with 400,000 b/d increased production from non-OPEC producers.

In other news, the US Department of Commerce said July 14 US retail sales dipped 0.5% in June. It was the second consecutive month of losses, following a 1.1% decline in May and indicating a likely slow-down in economic recovery. If not for a drop in auto sales and declining gas prices, June retail sales would increased 0.1%, officials said.

DOC separately reported business inventories were up 0.1% in May, but sales were down 0.9% in the first decline since March 2009.

US inventories
The 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, compared with market expectations of no change. Distillate fuel inventories gained 2.9 million bbl to 162.6 million bbl, surpassing the market’s outlook for a 1 million bbl increase.

The American Petroleum Institute earlier reported US crude stocks increased by 1.7 million bbl to 353.5 million bbl. Gasoline inventories were up 1.7 million bbl to 221.8 million bbl, said API, while distillate stocks gained 3.2 million bbl to 160.9 million bbl.

EIA said imports of crude into the US fell 132,000 b/d to 9.3 million b/d last week. For the 4 weeks through July 9, US crude imports averaged 9.6 million b/d, up by 217,000 b/d from the comparable period last year.

The input of crude into US refineries was up by 241,000 b/d to 15.5 million b/d with units operating at 90.5% of capacity. Gasoline production increased to 9.5 million b/d. Distillate fuel production increased to 4.5 million b/d.

Energy prices
The August contract for benchmark US light, sweet crudes escalated $2.20 to $77.15/bbl July 13 on the New York Mercantile Exchange. The September contract gained $2.15 to $77.59/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.20 to $77.15/bbl. Heating oil for August delivery advanced 5.61¢ to $2.05/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 5.41¢ to $2.08/gal.

The August natural gas contract dropped 3.4¢ to $4.35/MMbtu on NYMEX, the lowest settlement since June 1, said Sharma. “Prices rose in earlier trading finding support from projections of returning hotter-than-normal weather, but failed to sustain the rally on over-supply concerns. We believe that increased cash-demand due to hotter-than-normal temperatures combined with fuel-switching demand would provide support at these levels as the temperatures on the East Coast are expected to be much above normal for rest of the week,” he said. On the US spot market, gas at Henry Hub, La., gained 4.5¢ to $4.47/MMbtu.

In London, the August IPE contract for North Sea Brent crude was up $2.28 to $76.65/bbl. Gas oil for August gained $17 to $653.25/tonne.

The average price for OPEC’s basket of 12 reference crudes increased 58¢ to $72.58/bbl.

Contact Sam Fletcher at [email protected].