MARKET WATCH: October front-month NYMEX crude price down 32.6%

Sam Fletcher
Senior Writer

HOUSTON, Nov. 3 -- A surprise rally in the last few moments of trading Oct. 31 on the New York Mercantile Exchange was too little, too late to prevent October from registering the biggest monthly loss for front-month crude prices since that commodity began trading in that market in 1983.

The December contract, currently the front-month contract for benchmark US light, sweet crudes regained $1.85 to $67.81/bbl at closing on NYMEX. At one point during the week, said Olivier Jakob at Petromatrix, Zug, Switzerland, "West Texas Intermediate came close to but failed to test the support of $60/bbl and finished the week higher by $3.66/bbl, but most of these gains were made in the final 10 min of the week and of the month. [North Sea] Brent was up by $3.27/bbl, Heating oil for December by $4.80/bbl, and the contract for reformulated blend stock for oxygenate blending (RBOB) up by only $1.94/bbl. Natural gas was higher by 5%. WTI is now $28/bbl lower than a year ago, and this was the first in 5 weeks with a higher weekly close."

Nevertheless, the front-month NYMEX crude price was down 32.6%, or $32.83/bbl, for the month and 54% below a record-high of $147.27/bbl in July. So far this year, crude prices have tumbled 29.4% on NYMEX.

Some said the rally apparently began in petroleum products, with an end-of-the-month squaring of market positions. Jakob said, "Heating oil values continue to hold the oil complex above water and is the only product providing some support to refining margins, but the Commodity Futures Trading Commission data continues to show a dearth of speculative activity on heating oil with positions showing close to no change in the week. For heating oil, all the activity is happening in the commercial section or through small speculators (small speculators are holding more of the open interest in heating oil than large speculators.) In RBOB, large speculators continue the action of last week and are adding to net length and covering short positions while the crack is in negative territory."

Meanwhile, The University of Michigan/Reuters index released Oct. 31 showed a fall to 57.6 in late October, compared with a reading of 70.3 in late September. Earlier in October, the reading was down to 57.5.

The US Commerce Department said gross domestic product contracted in the third quarter to the lowest quarterly figure since the third quarter of 2001. For the most recent quarter, GDP fell at a seasonally adjusted 0.3%/year rate between July and September. The US Energy Information Administration reported US oil use in August was the lowest since December 2001, down 8.4% from the same period a year ago (OGJ Online, July 31, 2008).

In the Houston office of Raymond James & Associates Inc., analysts said crude prices were lower in early trading Nov. 3 on concerns of continued slowing energy demand. Over the weekend, Chakib Khelil, president of the Organization of Petroleum Exporting Countries, warned that member countries must make further production cuts to stabilize oil prices between $70-80/bbl. "The downward demand pressure is partly a result of continued uncertainties around the global financial crisis, but tomorrow's US presidential election may alleviate some of the uncertainty by providing more clarity around future government policies," said Raymond James analysts.

Meanwhile, they said supply disruptions blur domestic gas production growth in August. The latest US Energy Information Administration's Form-914 natural gas production survey, released Oct. 31, laid out total US volumes averaging 63.3 bcfd in August—up 5.4 bcfd (9.3%) from a year ago. "While volumes fell 100,000 bcfd sequentially, we would point out that production was negatively impacted by hurricane-related (Gustav) shut-ins, which the Mineral Management Service pegs at 300,000 MMcfd, and operational issues (compression, shut-ins, etc.) in Wyoming. While this 'sloppy' data point is 2 months stale, it provides support to the bearish natural gas injection numbers seen in August, running 3.5 bcfd looser (on a weather-adjusted basis). For September, supply disruptions…should further impact the transparency of the EIA-914 data."

Energy prices
The January contract for benchmark US light, sweet crudes rebounded by $1.94 to $68.48/bbl on NYMEX. On the US spot market, WTI at Cushing, Okla., was up $1.85 to $67.81/bbl. Heating oil for November gained 2.22¢ to $2.01/gal on NYMEX. RBOB for the same month dropped 2.57¢ to $1.44/gal.

The December natural gas contract escalated 35.2¢ to $6.78/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 55.5¢ to $6.17/MMbtu.

In London, the December IPE contract for North Sea Brent gained $1.61 to $65.32/bbl. The November contract for gas oil increased $7.75 to $636.50/tonne.

The average price for OPEC's 13 benchmark crudes dropped $2.27 to $57.65/bbl Oct. 31. So far this year, OPEC's basket price has averaged $103.98/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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