MARKET WATCH: Crude hits 4-year low on NYMEX

Sam Fletcher
Senior Writer

HOUSTON, Dec. 19 -- Energy markets continued to ignore the latest production reduction by the Organization of Petroleum Exporting Countries as the front-month crude contract hit 4-year lows below $37/bbl Dec. 18 on the New York futures market.

At a brief meeting Dec. 17 in Oran, Algeria, OPEC members bundled previously announced cuts of 500,000 b/d in September and 1.5 million b/d in October with a new cut of 2.2 million b/d for a total reduction of 4.2 million b/d effective Jan. 1 (OGJ Online, Dec. 17, 2008). The 2.2 million cut is the largest single reduction ever promised by OPEC. However, with members complying with only 60% of the agreed September and October reductions, the market has little faith in OPEC and focuses instead on falling demand for crude.

Having failed in its last three attempts to halt the plunge of oil prices, OPEC Pres. Chakib Khelil said the group may meet again Jan. 19 in Kuwait to discuss further reductions. US crude futures prices are down 75% from a record level above $147/bbl in July.

"Oil has faced such strong downward pressure lately as storage numbers have hit record highs, and Cushing[, Okla.] inventories look to fill completely next month," said analysts in the Houston office of Raymond James & Associates Inc. "Natural gas continued its downward trend . . . falling 1.2% on an Energy Information Administration reported withdrawal of 124 bcf [from US underground gas storage], which implies that we are 5.14 bcfd looser vs. last year on a weather-adjusted basis."

Olivier Jakob at Petromatrix, Zug, Switzerland, reported intense fog since Dec. 16 has shut down ship channels from Louisiana to Texas. "This should make for a sharp fall in crude oil imports and stocks in the next [weekly] Department of Energy report. There is, however, no shortage of stocks onshore, and this will remain a short-dated
weather delay rather than a structural problem," he said. "US refinery processing margins had fallen to such a low level that refineries were making a better return by . . . running the assets as a storage facility."

But now the contango on benchmark US crude futures in the New York market "is starting to price crude back to the refineries but is also shutting down the arbitrage flows, which unless OPEC makes good on the cuts will then export some of the US contango back to Europe," Jakob said.

Energy prices
Trading was volatile at $35.98-40.90/bbl Dec. 18 for the January contract for benchmark US light, sweet crudes, which expires at the end of trading Dec. 19. It closed at $36.22/bbl, down $3.84 for the day on the New York Mercantile Exchange. Trading volume was greater for the February contract, which lost $2.94 to $41.67/bbl. On the US spot market, West Texas Intermediate at Cushing continued to follow the front-month futures contract, down $3.84 to $36.22/bbl. Heating oil for January dropped 6.96¢ to $1.37/gal on NYMEX. The January contract for reformulated blend stock for oxygenate blending (RBOB) declined 4.26¢ to 97¢/gal.

Natural gas for the same month fell 7.1¢ to $5.55/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 3¢ to $5.60/MMbtu.

In London, the February IPE contract for North Sea Brent crude lost $2.17 to $43.36/bbl. Gas oil for January dropped $15 to $455.25/tonne.

The average price for OPEC's basket of 13 reference crudes declined $1.47 to $39.48/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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