The futures market began July with continued strong bullish momentum from the previous month on concern over winter fuels in the Western hemisphere. The Nymex frontmonth August futures contracts saw a high well above $61/b in the first week amid the approach of Tropical Storm Cindy in the Gulf of Mexico. Non-commercials continued to boost net long positions for the straight fifth week to close 5 July some 11,000 lots higher at 33,000 contracts with open interest building 31,000 lots to peak over the 800,000 mark at 814,000. In the second week, the string of tropical storms continued as Hurricane Dennis was quickly followed by Tropical Storm Emily, helping Nymex futures to remain around the $60/b levels. Non-commercials continued to build net long positions although at a slower pace, rising 1,300 to 34,000 lots amid another significant build in open interest that rose some 14,000 contracts to 828,000.
However, as the storms spared the oil operations in the Gulf of Mexico, the Nymex WTI front-month eased later
in the week. In the third week, as fears of weather-related supply shortfalls faded, the Nymex WTI futures
contract slipped towards the $58/b level amid healthy build in distillate stocks. Speculators liquidated long
positions significantly, dropping some 15,000 lots for net longs of 19,000 contracts.The final week saw a
reversal in the futures market amid the prospect of stronger demand from China and concern over refinery snags
reviving concern over gasoline stocks. The Nymex WTI September new month’s futures contracts rose to around
the $59/b level. Non-commercials continued to decrease net long positions, which dropped 7,000 contracts to
12,000. Open interest also fell for the second week by a significant 20,000 lots towards the 800,000 level amid a
drop of a similar magnitude by commercials. Open interest for July averaged 129,000 lots higher than the same
period last year. When options are included, open interest closed almost 300,000 contracts higher at 1,327,000
contracts. The Nymex WTI prompt month average in July was $59.03 for a gain of $2.61 or nearly 5% over the
previous month.
The contango continued for the ninth consecutive month. The 1st/2nd month spread was 9˘ wider than in the previous month to minus 97˘/b. The1st/6th month spread widened19˘ further to minus $2.49/b. The contango narrowed towards late second decade and early third decade of July on worries over a looming supply shortfall due to the early and active hurricane season amid a 7 mb draw on crude oil stocks in July. However, the healthy build in distillate stocks supported the forward structure to steepen into contango. US crude oil stocks in July were estimated at 318 mb, some 23 mb above the same time last year.
