MARKET WATCH: Crude prices continue to tumble

Sam Fletcher
Senior Writer

HOUSTON, Nov. 20 -- Energy prices fell for the fourth consecutive session Nov. 19 in the New York market as the weakening economy undercut energy demand, but natural gas prices rose on forecasts of cold weather.

"Crude was not even able to rally on a slightly bullish Department of Energy report, as the market's momentum is clearly bearish," said analysts in the Houston office of Raymond James & Associates Inc. "While we are not ready to call the bottom on crude, we still believe in the bullish long-term fundamentals."

DOE's Energy Information Administration reported commercial US crude inventories gained 1.6 million bbl to 313.5 million bbl in the week ended Nov. 14. Gasoline stocks increased by 500,000 bbl to 198.6 million bbl. Distillate fuel inventories dropped 1.5 million bbl to 126.9 million bbl (OGJ Online, Nov. 19, 2008).

Olivier Jakob at Petromatrix, Zug, Switzerland, noted that East Coast heating oil stocks are 6 million bbl, or 16%, lower than in the same period a year ago. "Distillates have been the only support to the oil complex, and with the Atlantic temperatures moving below normal, it will likely continue to do so," he said. "Gasoline on the other hand is still not providing any support to the refining margin, and the crack continues to be under pressure. Relief will need to come from a rebound in the naphtha crack or in demand. Both are showing some signs of bottoming but not yet of a recovery."

Meanwhile, the House Democratic Caucus voted Nov. 20 to replace Energy and Commerce Chairman John Dingell (D-Mich.) with Rep. Henry Waxman (D-Calif.). "A Waxman win changes the character of House Democrats' views toward coal and cars, the two principal sources of greenhouse gas emissions in the US economy," said analysts at Friedman, Billings, Ramsey & Co. Inc. (FBR) in Arlington, Va. "While the oil industry has few natural defenders left on Capitol Hill as a result of industry consolidations, retirements of senior lawmakers, and the change in party leadership, coal retains a 'stronghold' among Senate Democrats."

FBR analysts noted that Dingell previously proposed moderate climate controls relative to strict cuts favored by Waxman and many other California Democrats. "Dingell would be likely to resist calls for further increases of fuel economy standards in tandem with financial support for Detroit's automakers," the analysts said.

Moreover, they said, "Chairman-elect Waxman could replace Energy and Air Quality Subcommittee Chairman Rick Boucher (D-Va.), an outspoken advocate of coal, with Rep. Ed Markey (D-Mass.), current chairman of the House Select Committee on Energy Independence and Global Warming."

Meanwhile, with ministers of the Organization of Petroleum Exporting Countries planning an emergency meeting Nov. 29 in Cairo, ahead of their scheduled Dec. 17 meeting in Oran, Algeria, FBR analysts acknowledge, "All signs point toward a further cut" in crude production. However, analysts said, "The financial strictures on many OPEC producers will discourage significant reductions and increase the prospect of defections that undermine supply-side attempts to control price. As a result, the weight of a December cut will need to be borne in large part by Saudi Arabia, making other nations' ongoing compliance with October's 1.5 million b/d [reduction] target a likely bellwether of Saudi willingness to shoulder the burden."

In other news, the US Federal Highway Administration reported a 4.4% drop in vehicle miles traveled on all US roads during September vs. the same month in 2007. For 2008 through September, US vehicle mileage has declined 3.5% overall.

The latest MasterCard Advisors' data indicated US demand for gasoline increased by 133,000 b/d to 9.03 million b/d last week but is still down 2.8% from year-ago levels.

As of midday Nov. 19, the US Minerals Management Service said crews still have not returned to 58 of the 694 manned production platforms in the Gulf of Mexico following Hurricane Ike, which made landfall Sept. 13 in Galveston, Tex. MMS officials reported 16.3% of the oil and 24.4% of the natural gas normally produced from federal leases in the gulf remain shut in.

Energy prices
The December contract for benchmark US sweet, light crudes dropped 77¢ to $53.62/bbl Nov. 19 on the New York Mercantile Exchange. The January contract fell 66¢ to $54.10/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 77¢ to $53.62/bbl. Heating oil for December delivery inched up 0.18¢ with its closing price essentially unchanged at $1.76/gal on NYMEX. The December contract for reformulated blend stock for oxygenate blending (RBOB) declined 2.98¢ to $1.11/gal.

Forecasts of cold weather across much of the US caused the December natural gas contract to escalate 22.7¢ to $6.74/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 7¢ to $6.79/MMbtu. Meanwhile, EIA reported Nov. 20 the injection of 16 bcf of natural gas into US underground storage during the week ended Nov. 14. That boosted the amount of working gas in storage to 3.5 tcf, down 51 bcf from the same period a year ago but up 140 bcf above the 5-year average.

In London, the January IPE contract for North Sea Brent crude declined 12¢ to $51.72/bbl. The December gas oil contract lost $8.50 to $547.25/tonne.

The average price for OPEC's basket of 13 reference crudes dropped 66¢ to $45.89/bbl on Nov. 19.

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