The crude contract "moved up 80¢/bbl in the 60 sec that followed the release of the US Department of Energy report and managed afterwards to hold and improve on those gains," stopping the momentum of previous price erosion, said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

DOE"s Energy Information Administration said US gasoline inventories dropped 700,000 bbl to 202.6 million bbl in the week ended June 22, vs. the consensus expectation of 1 million bbl increase. Analysts in the Houston office of Raymond James & Associates Inc. said it was the first draw on gasoline inventories in 8 weeks. "With both the US refinery utilization rate and gasoline inventory levels remaining well below the 5-year average, the draw in gasoline supplies has reignited concerns about adequate inventory levels," they said. Distillate stocks fell 2.3 million bbl to 120.4 million bbl against the consensus expectation of a 600,000 bbl build. Crude inventories increased by 1.6 million bbl to 350.9 million bbl in the same week (OGJ Online, June 27, 2007). "Crude inventories have now reached levels not seen since May 1998," said Raymond James analysts.

"Despite US retail gasoline prices having averaged more than $3/gal during the past several weeks, demand remained 1.4% above comparable year-ago levels," said Eitan Bernstein of Friedman, Billings, Ramsey & Co. Inc., Arlington, Va.

Paul Horsnell at Barclays Capital Inc., London, reported, "US oil product inventories are now at the greatest deficit to their 5-year average since 2004." Assessing the gasoline market, he said, "Strong demand, falling imports, and flat output is not a great combination, and we continue to look for gasoline prices to push up towards their second peak of the driving season. Gasoline demand for June-to-date is averaging 9.551 million b/d, which is just 34,000 b/d lower than the all-time record for any month set last August."

Jakob said, "With ample crude stocks and no apparent crude hotspots, the [current price] range is being capped by producer hedging on one side and supported by technical trading trying to break the $70/bbl barrier on the other; and this will be maintained until one group gives up."

Energy prices

The August contract for benchmark US sweet, light crudes traded as high as $69.36/bbl before closing at $68.97/bbl, up by $1.20 June 27 to recoup much of its loss from the previous session on the New York Mercantile Exchange. The September contract gained $1.03 to $69.28/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.20 to $68.98/bbl. The July contract for reformulated blend stock for oxygenate blending (RBOB) advanced by 0.77¢ but closed virtually unchanged at $2.25/gal on NYMEX. Heating oil for the same month increased by 3.13¢ to $2.02/gal.

The July natural gas contract climbed by 5.2¢ to $6.93/MMbtu June 27 on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 9.5¢ to $6.76/MMbtu. EIA reported the injection of 99 bcf of natural gas into US underground storage in the week ended June 22. That exceeded the consensus among Wall Street analysts and compared with injections of 89 bcf the prior week and 66 bcf in the same period a year ago. US gas storage is now at 2.4 tcf, 90 bcf below year ago levels but up 372 bcf vs. the 5-year average.

In London, the August IPE contract for North Sea Brent crude gained 36¢ to $70.53/bbl.

"There is in our view now absolutely no reason at all for WTI to be trading so far below Brent," Horsnell said. "Indeed it is becoming something of an absurdity." The July gas oil contract increased by $5.75 to $625.75/tonne.

The average price for the Organization of Petroleum Exporting Countries" basket of 11 benchmark crudes dropped 15¢ to $67.28/bbl on June 27. Horsnell said, "For the past 5 [trading] days, the value of the OPEC basket has recorded successive values all within the same 50¢ range, and indeed it has stayed within a range of less than a dollar for the past 8 trading days. For WTI, the magic interval has been $68.40 through to $69/bbl, the whole of which range has been traded through on each of the past 8 trading days."

PIN/OGJ.COM