MARKET WATCH: Bearish inventory report reduces oil prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 1 -- Oil prices continued to slip June 30 in the New York market after the Energy Information Administration reported total petroleum inventories rose by 1.4 million bbl, compared with the Wall Street consensus for a 500,000 bbl withdraw.

EIA said commercial US inventories of crude dropped 2 million bbl to 363.1 million bbl in the week ended June 25. Gasoline stocks gained 500,000 bbl to 218.1 million bbl in that same period, while distillate fuel inventories climbed 2.5 million bbl to 159.4 million bbl (OGJ Online, June 30, 2010).

“Total fuel consumption dropped 2.7% to 19 million bbl in the week ending June 25, the lowest level since April,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “US crude oil imports in the US Gulf [Coast] were lower by 730,000 b/d during the week due to a lower discharge of Iraqi crude oil (1.1 million bbl compared with 7.5 million bbl in the previous week, but the previous week’s discharge of Iraqi crude oil was exceptionally high). On the 4-week average, the US imported 2 million b/d of Canadian crude oil while imports from Saudi Arabia were at 1 million b/d. Imports from Nigeria at 1.1 million b/d are up 370,000 b/d from a year ago, but imports from Venezuela at 600,000 b/d are very low and down 480,000 b/d vs. last year.”

He said, “The overall picture is therefore unchanged from previous weeks; increased demand is met by increased supplies and translates into a situation where overall stocks are not being reduced. The oil supply and demand is balanced and not supportive enough to have oil trend higher if new lows are set in equities.”

Analysts in the Houston office of Raymond James & Associates Inc. reported, “The last day of second quarter of 2010 was a mixed day for energy: Exploration and production stocks were slightly down, service stocks were up a point or two, coal stocks were down, and the Standard & Poor’s 500 index was down 1%.”

Sharma said, “Natural gas for August delivery climbed 1.5% on forecasts of hotter-than-normal temperatures returning. Additionally, expectations of a below normal injection provided further support to prices yesterday, although, it is reflective of the weather demand of the past week.”

EIA reported the injection of 60 bcf of natural gas into US underground storage in the week ended June 25, below a consensus of 65 bcf. That raised working gas in storage to 2.68 tcf, down 27 bcf from a year ago and 287 bcf above the 5-year average.

Meanwhile, Hurricane Alex came ashore on the sparsely populated coast of Tamaulipas state in Mexico, 110 miles south of Brownsville, Tex., essentially missing the primary oil and gas production areas of the Gulf of Mexico. Nevertheless, as much as 421,000 b/d or 24% of US gulf oil production and 1 bcfd of gas were shut in as a precautionary measure ahead of the storm, said Sharma. “We believe that temporary supply disruption from the gulf will provide some relief to crude,” he said.

Jakob said, “It was the strongest hurricane for a month of June since 1966, and there will be more hurricanes to come in the season but no developments are on the radar screen for the long [US Independence Day] weekend.”

In other news, initial claims for US unemployment benefits rose last week for the second time in 3 weeks, climbing 13,000 to a seasonally adjusted 472,000 claims. The 4-week average rose to 466,500, its highest level since March. Initial claims each week have remained above 450,000 since the start of this year. Meanwhile, more than 1 million people have lost their benefits, and more may be eliminated after Congress failed to extend federal unemployment aid.

Energy prices
The August contract for benchmark US sweet, light crudes traded at $74.39-76.83/bbl July 30 on the New York Mercantile Exchange before closing at $75.63/bbl, down 31¢ for the day. The September contract dropped 41¢ to $76.16/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 31¢ to $75.63/bbl. Heating oil for July delivery retreated 3.96¢ to $1.98/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 1.14¢ to $2.06/gal.

The August natural gas contract escalated by 6.8¢ to $4.62/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 12¢ to $4.56/MMbtu.

In London, the August IPE contract for North Sea Brent crude was down 43¢ to $75.01/bbl. Gas oil for July fell $6 to $644.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dipped 18¢ to $72.51/bbl.

Contact Sam Fletcher at [email protected].