MARKET WATCH: Rebounding stock market lifts oil prices

Sam Fletcher
Senior Writer

HOUSTON, Nov. 14 -- The front-month crude futures contract hit another 21-month low Nov. 13 before rebounding by 4%, pulled along by one of the largest turnarounds in stock market.

"The market traded in a V-shaped pattern," said analysts in the Houston office of Raymond James & Associates Inc., with the Standard & Poor's 500 stock index and the National Association of Securities Dealers Automated Quotation system (NASDAQ) touching 5-year lows before rallying to close with gains of almost 7%. Energy stocks outperformed the general market with the S&P E&P 1500 energy sector index and the Oil Service Index up 11.3% and 11.8%, respectively.

Olivier Jakob at Petromatrix, Zug, Switzerland, noted a "very strong correlation" in trade between the Dow Jones Industrial Average and the front-month crude contract. However, he said, "We are starting to see a divergence in the dollar-to-oil trade as the dollar index is finding more difficulty in ascending as quickly as oil is descending."

The December contract for benchmark light, sweet crudes traded as low as $54.67/bbl following an Energy Information Administration report that crude inventories were unchanged at 311.9 million bbl in the week ended Nov. 7, despite a Wall Street consensus for a 1.2 million build. Gasoline increased by 2 million bbl to 198.1 million bbl, outstripping the consensus for a 200,000 bbl advance. Distillate fuel inventories rose by 600,000 bbl to 128.4 million bbl (OGJ Online, Nov. 13, 2008).

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes dropped $2.21 to $47.73/bbl Nov. 13, prompting OPEC Pres. Chakib Khelil to invite non-Arab members of that group for market consultations at 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. Iran, Venezuela, and Algeria are calling for another production cut to halt the fall in oil prices.

Meanwhile, Saudi Arabia's King Abdallah bin Abd al-Aziz Al Saud has been invited to the weekend meetings of the Group of 20, an economic forum of the world's largest economies, in Washington, DC. However, Jakob said the purpose "is not to ask for Saudi Arabia to bring the price of oil to $30/bbl" but to help fund the International Monetary Fund. "It is difficult to ask for both," Jakob observed.

Energy prices
The December crude contract climbed by $2.08 to $58.24/bbl Nov. 13 on the New York Mercantile Exchange. The January contract gained $2.03 to $59.06/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.08 to $58.24/bbl. Heating oil for December increased 3.96¢ to $1.88/gal on NYMEX. The December contract for reformulated blend stock for oxygenate blending (RBOB) gained 5.43¢ to $1.30/gal.

Natural gas for that same month dropped 8.7¢ to $6.32/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 32.5¢ to $6.29/MMbtu.

In London, the December IPE contract for North Sea Brent crude declined 38¢ to $51.99/bbl. The December gas oil contract lost $12.50 to $574.25/tonne.

Contact Sam Fletcher at samf@ogjonline.com.

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