Oil Prices Change Direction As Dennis Projection Shifts
August contract light sweet crude dropped its rally on Friday aft Hurricane Dennis projections moved the storm away from oil platforms in the Gulf of Mexico. The prices closed at $59.63 a barrel after climbing to $61.90 during the day. Brent crude traded in the IPE in London dropped $1.10 to $58.20.
Gasoline, after hitting record earlier in the week dropped to $1.76 a gallon after opening at $1.84 and hitting $1.86 for the high point. Heating oil came down off the record set earlier in the week closing at $1.71 yesterday. Heating oil drops are tied more the EIA reports from Thursday than anything else.
The EIA report, released on Thursday, shows an extraordinary climb in distillate inventories. While crude oil inventories dropped 3.6 million barrels overall to 324.9 million barrels, distillates climbed 4 million barrels for the week to 117.2 million total up 3.2 million for the year. Gasoline inventories dropped 900,000 barrels to 215.3 million total and up 9.2 million for the year.
Traders will remain bullish even though hurricane fears have been alleviated for the moment, the fact still remains they believe the supply is stretched entirely to thing for the coming 4th quarter. Refineries run near maximum output at 98% so they don’t have much room for movement and OPEC has very little oil production capacity left. OPEC said they would resume talks to increase production another 500,000 but most experts concede that would be all OPEC has left until they come up with something new.
Another factor that may help some will be the pipeline based in Azerbaijan, running through Georgia and hitting ports in Turkey. This pipeline will put out 1 million barrels a day and will start filling tankers in August. OPEC maintains that crude oil inventories aren’t the problem. The say it’s all about bottlenecks at refineries. Some argument could be made for both sides since OPEC is running near capacity, just like refineries are.
In any event, the market remains stretched incredibly thin and shows no signs of loosening in the immediate future. Even though refiner try desperately to build distillate inventories, the market hasn’t reacted dramatically on the new levels of inventory which means those refineries will need to crank out a lot more before they will.
John Stith is a staff writer for WebProNews covering technology and business.