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MARKET WATCH: Crude prices continue to fall

Sam Fletcher
Senior Writer

HOUSTON, Nov. 19 -- The soon-to-expire front-month crude contract hit yet another 22-month intraday low as energy prices continued to fall Nov. 18 on the New York futures market amid persistent signs of a weakening economy.

US stock prices fell after the National Association of Home Builders reported its monthly market index unexpectedly hit a record low in November. But the market later rallied because of better-than-expected earnings reported by Hewlett-Packard Co. and Home Depot Inc.

"Crude continues to fall as economic weakness and softer demand are expected to more than offset…supply cuts" by the Organization of Petroleum Exporting Countries, said analysts in the Houston office of Raymond James & Associates Inc. They also noted Chevron Corp. on Nov. 18 declared a force majeure through yearend in Nigeria after a main supply pipeline was sabotaged last week, forcing the shut-in of 90,000 b/d of crude.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, "Position management [in the futures market] will remain a strong factor for the next 10 days since next week will be a very short trading week due to the US Thanksgiving holiday on Nov. 27. There might be larger than usual book squaring in front of that extended weekend as OPEC will also then have a family reunion [with non-Arab members invited to the Nov. 29 meeting of the Organization of Arab Petroleum Exporting Countries in Cairo, ahead of the scheduled OPEC meeting Dec. 17 in Oran, Algeria (OGJ Online, Nov. 14, 2008)]."

However, Jakob said, "OPEC is starting to downplay the outcome of the Cairo meeting, and it feels like there is game of spoof currently ongoing between members on the level of compliance. For now the Cairo OPEC meeting seems to be more about misgiving than about Thanksgiving."

In other news, Raymond James analysts said, "The threat of piracy may have subsided in the near term; yesterday an Indian warship exchanged fire with and set ablaze a pirate 'mother vessel' that likely was responsible for the recent Somalian attacks on crude oil vessels." Somalian pirates hijacked a supertanker, the 1,080-ft Sirius Star, with a crew of 25 and a cargo of 2 million bbl of oil, 450 nautical miles off the coast of Kenya (OGJ Online, Nov. 18, 2008).

US inventories
The Energy Information Administration said Nov. 19 commercial US crude inventories gained 1.6 million bbl to 313.5 million bbl in the week ended Nov. 14, compared with a Wall Street consensus for a 1.5 million bbl gain. Gasoline stocks increased by 500,000 bbl to 198.6 million bbl, vs. Wall Street's expectations of a 400,000 bbl build. Distillate fuel inventories dropped 1.5 million bbl to 126.9 million bbl vs. a consensus for a gain of 300,000 bbl. Propane and propylene inventories rose 100,000 bbl to 60.4 million bbl.

Imports of crude into the US increased by 368,000 b/d to 9.9 million b/d during the same period. The input of crude into US refineries gained 95,000 b/d to 14.6 million b/d, with units operating at 84.9% of capacity. Gasoline production fell to 8.8 million b/d last week; distillate fuel production increased to 4.4 million b/d.

Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, reported, "Refined product inventories (gasoline plus distillate plus jet fuel) were essentially unchanged vs. last week, as the sector pattern of weak demand resulting in lower production and imports continued. We expect this lower supply trend to be maintained in the coming weeks, which should result in not only less gasoline, but also less distillate supply. This should support distillate margins, which remain in the $15-25/bbl range and are the key variable to monitor to determine refiner profitability in the fourth quarter of 2008."

Meanwhile, the latest weekly MasterCard Spending Pulse report "is still not showing a great impact from lower retail [gasoline] prices," Jakob said. He said, "Sales were higher than last week by 1.5% but are still down 2.8% from a year ago. This is the lowest year-on-year decline since August but not really something to cheer about when retail prices are $1.50/gal lower than in August."

Jakob said, "Naphtha cracks in the Far East seem to be somewhat stabilizing, but some European refinery units are coming back from maintenance and the gasoline crack in the US is sinking further. The heating oil crack also lost some of its premium, and the US refining margins are falling back to the lowest levels of the year.

Energy prices
The December contract for benchmark US hit a new low of $53.96/bbl in after-hours electronic training Nov. 18, the lowest level for a front-month crude contract since January 2007. It closed at $54.39/bbl, down 56¢ for the day on the New York Mercantile Exchange, having fallen 3.7% on Nov. 17. The January contract lost 73¢ to $54.76/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 56¢ to $54.39/bbl. Heating oil for December dropped 3.31¢ to $1.76/gal on NYMEX. The December contract for reformulated blend stock for oxygenate blending (RBOB) fell 3.78¢ to $1.14/gal.

Natural gas for the same month declined 1.7¢ to $6.52/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 16.5¢ to $6.72/MMbtu.

In London, the January IPE contract for North Sea Brent crude was down 47¢ to $51.84/bbl. Gas oil for December dropped $24.25 to $555.75/tonne.

The average price for OPEC's basket of 13 reference crudes lost $1.41 to $46.55/bbl.

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