MARKET WATCH: Crude prices fall, ending 5-day rally

Sam Fletcher
Senior Writer

Paula Dittrick
Senior Staff Writer

HOUSTON, Feb. 1 -- Crude prices fell Jan. 31, ending a 5-day rally on the New York market as the government reported the largest weekly increase in US unemployment claims in more than 2 years.

The US Department of Labor said first-time claims for state unemployment benefits escalated by 69,000 to 375,000 in the week ended Jan. 26. That's the largest weekly jump since September 2005 in the wake of Hurricane Katrina. US unemployment now is at the highest level since early October. Previously there had been a net decline of 51,000 first-time unemployment claims since late December.

That news followed recent government reports of better-than-expected durable goods orders and worse-than-expected fourth quarter gross domestic product growth. The bearish unemployment report may signal a downward spiral in the US economy and energy markets (OGJ Online, Jan. 31, 2008). However, some economists warned that employment figures can be volatile at this time of year because of seasonal adjustments.

The front-month crude contract climbed more than $5/bbl through the previous five sessions of the New York futures market as the value of the US dollar declined with repeated interest rate reductions by the Federal Reserve. The Federal Open Market Committee cut its benchmark lending rate Jan. 30 by half a percentage point to 3%—the second reduction in 8 days (OGJ Online, Jan. 30, 2008). But that move was expected and had already been figured into crude market prices, said Olivier Jakob at Petromatrix, Zug, Switzerland.

Ministers of the Organization of Petroleum Exporting Countries made no production quota changes during a Feb. 1 meeting in Vienna. Their decision came despite pressure from the US and other large consuming countries to increase output.

The assumption that OPEC would take no major action had already been priced into the market, analysts said.

An OPEC news release said, "Current OPEC production is sufficient to meet expected demand for the first quarter of the year." The ministers noted "significant uncertainties associated with the projected downturn in the global economy called for vigilant attention to their impact on key market fundamentals" until the Mar. 5 OPEC meeting.

OPEC reiterated "its determination to take every measure deemed necessary to keep the market stable."

Energy prices
The March crude contract of benchmark US light, sweet crudes traded at $89.58-92.30/bbl before closing at $91.75/bbl Jan. 31 on the New York Mercantile Exchange, down 58¢ for the day. The April contract lost 48¢ to $91.68/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 58¢ to $91.76/bbl. The February heating oil contract declined 1.48¢ to $2.53/gal on NYMEX. The February contract for reformulated blend stock for oxygenate blending dropped 2.49¢ to $2.31/gal.

The March natural gas contract gained 2.9¢ to $8.07/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., lost 8.5¢ to $8.10/MMbtu. The Energy Information Administration reported a larger-than-expected withdrawal of 274 bcf of natural gas from US underground storage in the week ended Jan. 25, up from withdrawals of 155 bcf the previous week and 88 bcf during the same time a year ago. Gas in storage now totals 2.26 tcf, down 336 bcf from a year ago but 85 bcf above the 5-year average.

In London, the February IPE contract for North Sea Brent retreated 32¢ to $92.21/bbl. Gas oil for February fell $13.25 to $797/tonne.

The average price for OPEC's basket of 12 reference crudes dropped 67¢ to $88.10/bbl on Jan. 31.

Contact Sam Fletcher at samf@ogjonline.com or Paula Dittrick at paulad@ogjonline.com.

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