MARKET WATCH: Egypt’s turmoil boosts oil prices

A threatened military takeover in Egypt helped push oil prices higher July 2 with front-month US benchmark crude up 1.6% to its highest closing price on the New York market since early May 2012.

Egyptian military officers seized key installations in Cairo and set a deadline July 3 for President Mohammed Morsi to abdicate his office. Morsi is the first democratically elected president in Egypt’s history.

The resulting instability in the most populous country in the Middle East had traders scrambling to cover short positions in the crude futures market, which in turn narrowed the price spread between West Texas Intermediate and North Sea Brent to less than $5/bbl “for the first time since January 2011,” said analysts in the Houston office of Raymond James & Associates Inc. However, they pointed out, “The futures strip continues to hold above $7/bbl throughout much of 2014.”

The jump in crude prices also carried corporate energy stocks higher with the SIG Oil Exploration & Production Index gaining 0.8% and the Oil Service Index up 0.4%.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “Crude oil markets enjoyed another strong day as US data flow remained supportive from a real-demand perspective.” He said market concerns about the possible effect of the Federal Reserve Bank’s proposed wind-down of stimulus spending may have on speculative demand “have been brushed aside.”

US inventories

The Energy Information Administration said July 3 commercial US crude inventories fell 10.3 million bbl to 383.8 million bbl in the week ended June 28, far exceeding Wall Street’s consensus for a 2.3 million bbl draw. US crude stocks remain above average for this time of year, however. Gasoline inventories dropped 1.7 million bbl to 223.7 million bbl last week, counter to market expectations for an increase of 700,000 bbl. Gasoline stocks also are well above average, although both finished gasoline inventories and blending components declined. Distillate fuel inventories were down 2.4 million bbl to 120.8 million bbl. Analysts anticipated a 1 million bbl increase.

Imports of crude into the US fell 891,000 b/d to 7.4 million b/d last week. In the 4 weeks through June 28, US crude imports averaged 8 million b/d, down 1.1 million b/d from the comparable period in 2012. Gasoline imports averaged 465,000 b/d last week while distillate fuel imports averaged 102,000 b/d.

The input of crude into US refineries increased 386,000 b/d to 16.1 million b/d last week with units operating at 92.2% of capacity. Gasoline production increased to 9.4 million b/d while distillate fuel production declined to 4.8 million b/d.

EIA also reported injection of 72 bcf of natural gas into US underground storage in the week ended June 28, below Wall Street’s consensus for a 74 bcf increase. That brought working gas in storage to 2.605 tcf, down 491 bcf from the comparable period a year ago and 30 bcf below the 5-year average

Energy prices

The August contract for benchmark US light, sweet crudes escalated $1.61 to $99.60/bbl July 2 on the New York Mercantile Exchange. The September contract climbed $1.54 to $99.42/bbl. On the US spot market, WTI at Cushing, Okla., jumped $3.53 to match the front-month crude futures closing of $99.60/bbl.

Heating oil for August delivery increased 2.78¢ to $2.90/gal on NYMEX. Reformulated stock for oxygenate blending for the same month rose 4.54¢ to $2.78/gal.

The August natural gas contract was up 7.7¢ to $3.65/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., regained 3.7¢ to $3.57/MMbtu.

In London, the August IPE contract for Brent advanced $1 to $104/bbl. Gas oil for July lost $3.50 to $879.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes took back 53¢ to $100.63/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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