MARKET WATCH: Improved economics, Mideast unrest boost oil prices

Continued unrest in Egypt and signs of economic improvement overall helped boost oil prices July 1 with crude up 1.5% in the New York futures market.

“Oil markets were supported by a confluence of growing optimism over the US economy and heightened geopolitical concerns amid protests in Egypt,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. West Texas Intermediate benefitted more than North Sea Brent, “given that it is demand prospects in the US that are driving oil markets, especially now [with] concerns over slowing economic activity in Asia.” Ground reported, “The Brent-WTI spread narrowed to below $5/bbl yesterday, the lowest intraday level since January 2011. The spread closed just above this mark at $5.01/bbl.”

The latest US Commodity Futures Trading Commission numbers for the week ended June 25 showed while oil markets did not succumb to pre-Federal Open Market Committee [the policy-making arm of the Federal Reserve Bank] fears, “they certainly were hit by post-FOMC concerns,” said Ground. “Net speculative length dropped a remarkable 25.5 million bbl—the largest drop since April. Most of this was an unwinding of speculative longs—28.7 million bbl, undoing the 25.9 million bbl gain of the preceding week. Speculative shorts also continued to fall (for the fourth consecutive week), albeit mildly, at 3.2 million bbl.”

Analysts in the Houston office of Raymond James & Associates Inc. reported, “Broader markets also showed some optimism yesterday, with encouraging US manufacturing data following positive reports out of Europe and Japan sending the Dow Jones Industrial Average up 0.4% on a sleepy week ahead of the July 4th holiday. Factory orders and vehicle sales could provide some direction today, but eyes are pointed towards [the July 5] jobs report.”

Energy stocks outperformed the rest of the equity market with the Oil Service Index up 1.2% and the SIG Oil Exploration & Production Index gaining 0.8%.

Energy prices

The August contract for benchmark US sweet, light crudes climbed $1.43 to $97.99/bbl July 1 on the New York Mercantile Exchange. The September contract rose $1.44 to $97.88/bbl. In a rare move on the US spot market, WTI at Cushing, Okla., broke its normal lock-step with the front-month crude futures contract, dropping 49¢ to $96.07/bbl, officials reported.

The new front-month August contract for heating oil increased 1.48¢ to $2.87/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 2.23¢ to $2.74/gal.

The August natural gas contract gained 1.2¢ to $3.58/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 2.7¢ to $3.53/MMbtu.

In London, the August IPE contract for Brent was up 84¢ to $103/bbl. Gas oil for July was unchanged at $883.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 68¢ to $100.10/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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