MARKET WATCH: Crude price falls, gas price rises

Sam Fletcher
OGJ Senior Writer

HOUSTON, Nov. 20 -- The front-month crude contract in the New York market fell Nov. 19, giving back much of its gains from a 3-day rally.

“Crude prices dipped for the first time in 4 trading days (down 3%) following along with the broader market, with the Dow Jones Industrial Average down almost 100 points or 1%,” said analysts in the Houston office of Raymond James & Associates Inc. “Energy stocks outpaced the broader market into the red, with the Oil Service Index down 3.5% and the S&P 1500 Oil & Gas Exploration & Production Index down 3% after investors were gripped with selling fever following a jobs data report showing further uncertainty about the direction of the economy,” they said.

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, “Economists worry about the possibility of a ‘jobless’ recovery in the US, and we are wondering if oil analysts should start thinking about the potential for an American economic rebound that is ‘oil-less.’”

On the other hand, the front-month natural gas contract price escalated 2% on the tail of a bearish report from the Energy Information Administration of the injection of 20 bcf of natural gas into US underground storage in the week ended Nov. 13 (OGJ Online, Nov. 19, 2009). That boosted the amount of working gas in storage to 3.833 tcf. “Go figure.” Raymond James analysts said. “There is a rising sentiment that there will be a net build in inventories for November (traditionally a net withdrawal month). Storage is currently 347 bcf higher than last year and 419 bcf above the 5-year average. Bearish for 2010? We think so.”

Sieminski said, “We believe the next three gas-storage reports are going to be very important to monitor. Warm weather in December could heighten excess storage, prompting ongoing disappointment in natural gas prices. We expect this overhang could carry over into the spring as end-season storage estimates climb.”

EIA earlier reported commercial US crude inventories declined 900,000 bbl to 336.8 million bbl in the week ended Nov. 13. Gasoline stocks dropped 1.7 million bbl to 209.1 million bbl in the same period, while distillate fuel inventories were down 300,000 bbl to 167.4 million bbl (OGJ Online, Nov. 18, 2009).

The trading pattern for the front-month crude contract on the New York Mercantile Exchange “is now quite repetitive,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “A rally on [Nov. 16-17] on the Dow and dollar hype, and a correction in the second half of the week after the reality check of the weekly oil statistics showing no improvement in demand. This would now be the fourth consecutive week with such a pattern, and unless West Texas Intermediate is brought today above $80/bbl, we will have another bearish reversal warning in the weekly charts.”

The “only gleam of support” for WTI is Iran’s apparent refusal to embrace the enrichment proposal of the world powers. “The US administration will be forced to start talking about sanctions, but with the US military stuck in Afghanistan and enough spare capacity within the Organization of Petroleum Exporting Countries to fully replace all of the Iranian crude oil exports, we would not want to price too great of an Iranian risk premium in a futures position,” Jakob said.

In other news, the US Department of Transportation reported a 2.5% increase in miles driven on US roads and highways in September from year-ago levels. That followed a 0.7% gain in August; year-to-date through September, US mileage is up 0.3% over the same period in 2008, DOT said. However, Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, noted 2008 was a leap year, with an extra day in February. “So on a daily basis, miles driven are up 0.7% year-to-date,” he said. EIA data indicated US gasoline demand had increased 0.3% from January through September.

Energy prices
The December contract for benchmark US light, sweet crudes fell $2.12 to $77.46/bbl Nov. 19 on NYMEX, after climbing a total of $3.23/bbl over the first three trading sessions this week. The January contract dropped $2.05 to $78.05/bbl. On the US spot market, WTI at Cushing, Okla., was down $2.12 to $77.46/bbl. Heating oil for December delivery declined 5.22¢ to $2/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month decreased 4.19¢ to $1.97/gal.

The December natural gas contract, however, gained 8.8¢ to $4.34/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gave back most of the previous session’s gain, down 18.5¢ to $3.53/MMbtu.

In London, the January IPE contract for North Sea Brent crude lost $1.83 to $77.64/bbl. Gas oil for December fell by $22 to $621/tonne.

The average price for OPEC’s basket of 12 reference crudes was down $1.10 to $76.77/bbl on Nov. 19.

Contact Sam Fletcher at samf@ogjonline.com.

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