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Crude Oil Price Movements - Aug 05

Source: OPEC_RP050805 9/1/2005, Location: Europe

The OPEC Reference Basket began July under pressure from continued concerns whether winter fuel stocks will be able to build sufficiently in the next few months. Bullishness was inspired by a surprise early start to the hurricane season in the Gulf of Mexico as Tropical Storm Cindy halted oil operations in the US Gulf Coast. This caused market sentiment to focus on a possible supply shortfall in crude oil and refined products in the Western hemisphere, which was exacerbated by the formation of another tropical storm Dennis. The OPEC Reference Basket saw a weekly average of $53.90/b, an increase of 71¢ or 1.3% over the previous week.

With the passing of these storms, the market calmed early in the second week, plunging as much as $1.63 or nearly 3% in one day. However, volatility soon returned with the formation of Hurricane Emily in the Caribbean Sea, which revived fears of last year’s disruption by Hurricane Ivan. Countering the upward price pressures caused by the storms was the build in distillate fuels inventories over the past weeks. Hence, the Basket saw only a marginal rise of 19¢ for the week. A drop in Chinese consumption amid an IEA forecast of slower demand revived bearish sentiments, which were strengthened by easing fears of the effect of Hurricane Emily in the Gulf of Mexico amid the prospect of a build in US distillate stocks. The Basket plunged in the third week by a hefty $2 or nearly 4% to settle at $52.02/b. The bearish mood was short-lived, as storm worries returned. Moreover, a fire at BP’s Texas City refinery added to the bullish momentum, causing the Basket to rally in the final week of the month by 49¢ or 0.94% to settle at $52.51/b following a 2% surge in the last day of July.

The OPEC Reference Basket averaged $1.09 or 2% higher in July over the previous month to stand at $53.13/b. Concerns over winter fuels amid refinery glitches kept the month bullish. Despite easing demand in the east and the forecast for slower demand growth, a series of tropical storms in the Gulf of Mexico intensified the overall bullish momentum. The official Basket price mentioned above uses the new 11-crude calculation for July but only partial calculation for June. Using the full calculation for June, the Basket rose $2.21 or 4.3% in July. Using the previous 7-crude calculation for both months, the Basket rose only $1.79 or 3.4% to reach $54.51/b.

US market
In the USA, the month of July also proceeded with a bullish tone following a spate of refinery glitches and stormy weather as Hurricane Dennis shut some 207,000 b/d of oil output in the Gulf of Mexico. WTI cash crude surged over 3% in the first two days of the month to average $59.98/b in the first week for a rally of 2.6% or $1.53. The WTI/WTS weekly average spread narrowed 19¢ to $2.52/b. Nevertheless, the market’s bullish sentiment was short-lived as oil operations were restored as the hurricane spared oil production and refining facilities along the US Gulf Coast. The second weekly period saw continuing volatile movement. The market remained alert with the emergence of Tropical Storm Emily in the Gulf of Mexico, and a healthy build in winter fuel inventories helped to dissipate the bulls. Hence, the WTI cash crude weekly average closed 60¢ or 1% lower at $59.38/b. Market bearishness continued in the third week as the disruption of oil operations in the Gulf of Mexico was less than 1% amid OPEC lowering its demand growth estimate for 2005. Hence, the third weekly average for WTI cash crude was down by a hefty $2.46 or over 4% to settle at $56.92/b. However, the WTI/WTS spread narrowed 11¢ to $2.39/b on the continued build in distillates fuel stocks. Bulls regained traction in the market as Tropical Stor m Franklin surfaced in the Caribbe an Sea as US crude oil data revealed the fourth weekly drop in US crude inventories for a total fall of nearly 11 mb. The upward trend was also inspired by the prospect that China’s oil and product demand would pick up again after the country floated its currency a week earlier. Hence, the WTI cash crude surged $1.26 or 2.2% to average $58.18/b in the final week, after surging over $60/b in the final day of the month. The July monthly average saw a gain of $2.06 or 3.6% over the previous month to stand at $58.66/b.

European market
The European oil market saw improved refining margins in July inspired by the surge in gasoline and gasoil prices. However, this sentiment was diminished later in the first week, as traders were furious about Platt’s decision to include barrels from storage in its price assessment amid comfortable crude oil stock levels and the emerging August loading programme. Dated Brent closed the first week up 67¢ or 1.2% at $57.51/b. A more bearish sentiment took over early in the second week amid lingering July cargoes and the emerging August loading programme. Nevertheless, the sentiment turned bullish as the August loading programme revealed a 5% drop in volume. Hence, Brent gained 47¢ or slightly less than 1% for a weekly average of $57.98/b. The higher outright prices kept buyers on the sideline, forcing sellers to lower their offers, which increased activities. Strong refinery demand amid limited August availabilities supported th e price differential to accelerate in the third week. Yet outright prices slipped on easing concern over a West of the Atlantic supply shortfall as bad weather spared oil operations. Dated Brent saw a drop of $1.45 or 2.5% for a weekly average of $56.53/b. Nonetheless, dwindling supply for August at month-end amid a rise in demand revived the bulls once again. In the final week, Brent gained $1.5 or 2.7% to average $58.04/b. The sentiment was inspired by news of a shut-down of BP’s 120,000 b/d Schiehallion field in the North Sea as well as refinery outages in the USA. The monthly average for July rose $2.74 or 5% over the previous month to stand at $57.47/b.

Mediterranean Urals was bid stronger earlier in the month on absence of trade despite a move by a Mideast major to cut the price differential for August heavy grades. Urals averaged $54.63/b in the first week, an increase of 2.5%, with the sp read to Dated Brent narrowing by 66¢ to minus $2.88/b. The bullish mood for July barrels sustained into the second week amid healthy refinery demand although margins did not justify the high levels. Concern over dwindling supply kept alertness in place as some barrels flowed eastward. The second weekly average closed $55.37/b or 1.4% higher while improving to a $2.61/b discount to Dated Brent. However, high prices encouraged more sellers into the market, causing strength to ease later in the third week as poor margins made Urals less attractive for refiners. Nevertheless, the shortage of prompt August supply sent the Urals price differential up to the highest level since January 2004. An early August loading was heard traded at Dated Brent minus $1.85/b, which encouraged more sellers into the market. Hence, the third weekly average stood at $54.23/b for a drop of over 2%, while the spread to Dated Brent improved 31¢ to minus $2.30/b. In the final week in July, Urals was seen to be peaking, although the tight supply situation kept some pressure on prices. While the market was moving towards second-decade August loading, Urals price differential slipped amid unsold cargoes with sellers offering larger volumes than anticipated. Urals was trading at a slightly steeper discount to Dated Brent at $2. 5/b while the last week’s average stood 2.5% higher at $55.57/b. The monthly average for July was $3.77 higher than the previous month, at $54.95/b.

Far East market
The Mideast crude emerged on a weaker note as Chinese sellers disposed of a few Oman cargoes amid weak demand for fuel oil. September Oman was on offer at parity when traded at a 10¢ discount to MOG. The sentiment continued into the second week when assessed at a 15-20¢/b discount to MOG pressured by Chinese re-selling of prompt-loading July Urals. The pressure was sustained as China continued to re-offer September-delivered Urals cargo.

Hence, September Oman fell to a 20-22¢/b discount to MOG when concluded at a 48¢/b discount. It even plunged further when it was bid at around minus 60¢/b on the back of lower refinery runs in China amid the revaluation of the yuan.

September Abu Dhabi Murban emerged to trade at a 7¢/b discount to ADNOC’s OSP. Nevertheless, perception that September volumes would be lower than August prompted the grade to be valued at a premium. Anticipation of stronger demand from Thailand and rumours that Shell would move Oman barrels to Europe supported September cargoes to recover losses. September Oman was trading at a 30-40¢/b discount to MOG by month-end with Abu Dhabi assessed between a 5¢ discount and a 5¢ premium to OSP.

Asian market
In the Asian/Pacific Rim, sellers kept their offers at strong levels, with Malaysia August Tapis sold at a $1.80/b premium to PPI, which prompted buyers to move to the sidelines. Lower Chinese refinery runs also attributed to the slowing demand for regional and West African sweet grades. Continued Chinese re-selling of heavy sweet grade prompted the regional medium sweet grade to drop significantly. However, a series of buy-tender awards helped clear the lingering cargoes of August regional crude at di stressed levels. Moreover, trading for September cargoes kicked off early with a buying spree from Thailand as sellers quickly attempted to dispose of cargoes on fears that prices would fall further. Malaysia September Tapis was on offer at a 1.20/b premium to APPI when sold at $1/b premium later in the month. July Tapis OSP was set almost $4 over June at $58.17/b on the perception that premium would move higher amid a lower-than-anticipated OSP. Moreover, a fire at an Indian oil platform helped the premium to strengthen as Tapis revived, on offer at $1.30/b over APPI.

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