Sam Fletcher
OGJ Senior Writer
HOUSTON, July 23 -- The September crude contract traded lower July 22 in its first session as the new front-month contract on the New York futures market, ending a five-session rally.
“While oil should have been supported by a weakening dollar and news that oil demand in China rose for the third consecutive month, prices were pushed lower by a slightly bearish Department of Energy report and a declining broader market,” said analysts in the Houston office of Raymond James & Associates Inc.
DOE’s Energy Information Administration reported commercial inventories of benchmark US crudes dropped 1.8 million bbl to 342.7 million bbl during the week ended July 17. That was short of a Wall Street consensus for a decline of 2.1 million bbl. Gasoline stocks increased 800,000 bbl to 215.4 million bbl in the same period. Distillate fuel inventories grew 1.2 million bbl to 160.5 million bbl (OGJ Online, July 22, 2009).
Olivier Jakob at Petromatrix, Zug, Switzerland, said, “There was no dramatic change on the demand side, the 4-week average on a revised basis is 940,000 b/d lower than a year ago and apart from gasoline the rest of products are still in demand deficit to a year ago.”
In New Orleans, analysts at Pritchard Capital Partners LLC said implied gasoline demand increased “to 9,410,000 bbl, up from 9,318,000 bbl the prior week.” They said, “The jump in demand is a small sign of economic stability.”
Pritchard Capital Partners said, “Chinese crude demand also continues to move higher. China consumed 33.35 million [tonnes] of crude oil in June, which was up nearly 2.6% from the corresponding month in 2008, and the third month in a row to register a year-on-year increase in demand. Continued strength in crude is surprising considering the weak US economy and reinforces that crude is a global commodity.”
The price of the front-month natural gas contract also increased July 22, partly due to “vague rumors that the economics have become so bad in the Barnett shale that the entire play is on the verge of shutting-in all production,” said Pritchard Capital Partners.
Raymond James & Associates said, “While spot prices at Henry Hub have firmed recently to $3.48/Mcf from $3.21[a week ago], the futures market still sits much higher, and we believe the recent gas rally has been technically driven.”
The EIA reported the injection of 66 bcf of natural gas into US underground storage in the week ended July 17. That increased working gas in storage to 2.95 tcf, up 568 bcf from last year at this time and 458 bcf above the 5-year average.
In other news, Eni SPA ended its force majeure on shipments of Nigeria’s Brass crude. Royal Dutch Shell PLC earlier confirmed production at the East Area field in the Niger Delta. The field was reported to be producing 50,000 b/d but might soon ramp up to 115,000 b/d. It was one of the first targeted for attack by the Movement for the Emancipation of the Niger Delta and was shut in more than 3 years ago. MEND declared a 60-day ceasefire July 15.
Jakob said, “We are now probably starting to enter a phase where the amount of supply disruption in Nigeria has bottomed (until the next feud).”
The US Commodity Futures Trading Commission will begin hearings July 28 in Washington on energy position limits and hedge exemptions. “The question is not anymore whether the CFTC will impose position limits in energy but what will be the size of the position limits and when will they be implemented,” Jakob said. “Our opinion is that position limits will have a relatively small impact on independent hedge funds and will mostly impact the few well known Wall Street banks.” He said, “The real battle will likely be on the hedge exemptions since the same banks also run physical operations and will want to use these to apply for exemption.”
Energy prices
The new front-month September contract for benchmark US light, sweet crudes dropped 21¢ to $65.40/bbl July 22 on the New York Mercantile Exchange. However, the October contract gained 7¢ to $67.04/bbl. Subsequent monthly contracts advanced in price and remained in contango through at least July 2010.
On the US spot market, West Texas Intermediate at Cushing, Okla., fell $1.15 to $63.57/bbl. Heating oil for August delivery was up 1.28¢ to $1.71/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month increased 2.63¢ to $1.84/gal.
The August natural gas contract jumped 8.8¢ to $3.79/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 1.5¢ to $3.52/MMbtu.
In London, the September IPE contract for North Sea Brent crude was up 34¢ to $67.21/bbl, further widening its premium over WTI. Gas oil for August dropped $5.75 to $546.50/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes declined 36¢ to $64.68/bbl on July 22.
Contact Sam Fletcher at [email protected].