MARKET WATCH
Collapsing heating oil market pulls down energy prices

Sam Fletcher
Senior Writer

HOUSTON, Dec. 28 -- Despite a flurry of snowstorms across the US over the long Christmas holiday weekend, the heating market virtually collapsed Dec. 27 as the New York Mercantile Exchange reopened for trade in the face of sufficient supplies and forecasts of warmer weather.

Heating oil for January delivery plunged by 11.53¢ to $1.21/gal—the sharpest decline in 14 years for a nonexpiring contract, analysts said. It pulled down other commodity prices in its wake.

Trading was light, as is usually the case between Christmas and New Year's Day.

Technical trading in the thin market also drove the US dollar to a new low against the euro and the lowest level in nearly 3 weeks against the yen. The euro hit a new high of $1.364 on Dec. 27, while the dollar was trading at 103.03 yen. Since crude and petroleum products are priced internationally in dollars, that reduces energy costs in Japan and Europe and weakens the buying power in European markets among members of the Organization of Petroleum Exporting Countries.

With US refineries now running at nearly full capacity in production of distillate fuels, including heating oil and diesel, analysts expect further weakness in that market, with forecasts indicating milder temperatures over the next 2 weeks in the US Northeast, the world's largest market for heating oil.

Meanwhile, initial reports indicate no significant damage to offshore and coastal oil and gas operations in Asia from the recent massive earthquake and subsequent tsunami.

Other energy prices
The January natural gas contract plummeted by 50.8¢ to $6.16/MMbtu Dec. 27 on NYMEX. "Look for the market to remain on the defensive near-term, driven lower by high storage inventories, moderate weather, and another holiday week when many schools, businesses, and factories slow operations or are closed," said analysts at Enerfax Daily. Gasoline for the same month dropped 8.81¢ to $1.04/gal.

The February contract for benchmark US sweet, light crudes lost $2.86 to $41.32/bbl on NYMEX, while the March position retreated by $2.71 to $41.55/bbl on Dec. 27. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $2.66 to $41.33/bbl.

The average price of OPEC's basket of seven benchmark crudes declined by $1.28 to $35.30/bbl.

In London, the International Petroleum Exchange remained closed for the holiday through Dec. 29.

Contact Sam Fletcher at samf@ogjonline.com.

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