MARKET WATCH: Crude oil prices dip slightly; natural gas price increases

Crude prices dipped marginally Aug. 31 in the New York market on a bearish inventories report, ending a 2-day rally earlier this week. However, natural gas advanced 3.7% on potential supply impacts from Tropical Storm Katia brewing near the Dominican Republic.

Katia is expected to develop into a strong Category 3 hurricane. But the latest metrological models show the storm taking a northern track next week and posing no threat to oil and gas operations in the Gulf of Mexico or to the US East Coast. However, analysts continue monitoring the storm ahead of the long US Labor Day weekend.

Meanwhile, BP PLC and Anadarko Petroleum Corp. began evacuation of nonessential workers from the gulf because another tropical disturbance that could become tropical storm Lee ahead of the holiday. Other major operators in the gulf are keeping an eye on the weather. In Mexico, Petroleos Mexicanos (Pemex) said it is monitoring storm conditions but has taken no precautionary steps yet. The US National Hurricane Center said the disturbance has a 30% chance of becoming Tropical Storm Lee within 48 hr.

In Houston, analysts at Raymond James & Associates Inc. reported the broader equity market rallied at the end of August as the Dow Jones Industrial Average “officially turned positive for the year.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, observed, “Oil’s rally appeared to run out of steam yesterday, despite further gains seen in many major equity markets.” He said European gasoline also was lifted by the weekly US inventory report, but middle distillates weakened vs. crude.

“Meanwhile, the term structures for Brent and West Texas Intermediate strengthened as their December 2011-December 2012 spreads gained 63¢/bbl and 97¢/bbl respectively,” said Zhang.

US inventories

The Energy Information Administration reported the injection of 55 bcf of natural gas into US underground storage in the week ended Aug. 26, below the Wall Street consensus of 60 bcf. That raised working gas in storage above 2.96 tcf; that’s 137 bcf less than a year ago and 69 bcf below the 5-year average.

EIA earlier said commercial inventories of US benchmark crude jumped by 5.3 million bbl to 357.1 million bbl in the week ended Aug. 26, burying the Wall Street consensus for a 500,000 bbl withdrawal. Gasoline stocks dropped 2.8 million bbl to 208.6 million bbl in the same period, outstripping analysts’ predictions for a 1 million bbl draw. Distillate fuel inventories increased 400,000 bbl to 156.1 million bbl, slightly below market expectations of a 500,000 bbl gain (OGJ Online, Aug. 31, 2011).

The weekly EIA inventory report showed total US stocks increasing some 4 million bbl for the third consecutive week. “Since the start of the third quarter, the US has built 26.7 million bbl of commercial stocks, of which about 25 million bbl were a transfer from the strategic reserve to the commercial stocks,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “Excluding the Strategic Petroleum Reserve release, the US total petroleum stocks are flat so far in this quarter. Total US stocks are 51 million bbl below the historically extreme high stocks of 2010, slightly below (by 9 million bbl) the levels of 2009 and way above (by 102 million bbl) the levels of 2008. Stocks of crude and clean petroleum products were higher by 3.3 million bbl during the week.”

Jakob noted, “We are starting to exit the US summer demand season [effective the Sept. 5 Labor Day holiday] and as the specification moves to winter mode, production of gasoline will be easier. It will take a hurricane wiping out refinery assets to really tighten the US gasoline stock cushion. The gasoline stocks on the US East Coast are considerably lower than a year ago but at par to the levels of 2009.” Refinery runs on the East Coast are increasing, and with additional refining capacity now available in that area, he said, “We view the supply cushion as not worse than a year ago.”

He said, “Distillate stocks are still below the levels of 2009-2010, but the stock build since early June has been about at par to previous years.” Commercial crude stocks on the US Gulf Coast continue to build through the transfer of SPR barrels.

“Physically, all of the 30 million bbl of SPR crude oil has now been lifted, but 6 million bbl still have to show up in the next two Department of Energy reports,” Jakob said. “Crude oil stocks on the Gulf Coast are basically at par to the levels of a year ago and ample enough to allow the seasonal stock draw in the fourth quarter for tax reasons. After that, the picture in the first quarter of 2012 will pretty much depend on the rate of Libyan crude oil production coming back on stream.”

Energy prices

The October contract for benchmark US sweet, light crudes slipped 9¢ to $88.81/bbl Aug. 31 on the New York Mercantile Exchange. The November contract dipped 3¢ to $89.16/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 9¢ to $88.81/bbl in step with the front-month futures price.

Heating oil for September delivery inched up 0.9¢ to $3.08/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 3.62¢ to $3.03/gal.

The new front-month October contract for natural gas escalated 14.5¢ to $4.05/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 11.7¢ to $4.03/MMbtu.

In London, the October IPE contract for North Sea Brent advanced 83¢ to $114.85/bbl. Gas oil for September was unchanged at $973.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes climbed to $111.40/bbl on Aug. 31 from $109.48/bbl Aug. 30 when the group’s Vienna office was closed both days.

Contact Sam Fletcher at [email protected].