MARKET WATCH: Unemployment increase pushes down oil prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Nov. 9 -- Energy prices fell Nov. 6 for the second consecutive session in the New York market as the dollar strengthened and the Department of Labor reported the US unemployment rate climbed above 10% for the first time in 26 years.

In the nonfarm sector, 190,000 jobs were lost in October, bringing total jobs losses to 7.3 million in this recession.

However, crude was up slightly in early trading Nov. 9 on news Hurricane Ida had already disrupted oil production across the Gulf of Mexico as producers evacuated offshore rigs and platforms and shut in production, said analysts in the Houston office of Raymond James & Associates Inc. A falling dollar also helped the morning rally in crude prices.

Ida, a late-season category 2 hurricane, entered the gulf over the weekend and was expected to make landfall on the Florida Panhandle late Nov. 9 as a tropical storm. Early trading of natural gas appeared “largely unaffected.” However, Raymond James analysts said, “We suspect Hurricane Ida may give natural gas prices a near-term boost as the market awaits the impact of the storm.”

They said, “Last week natural gas prices fell from an intraday high of $5.12/MMbtu [Nov. 2] to settle at $4.60/MMbtu on [Nov. 6].” However, they also noted data from the Energy Information Administration’s monthly 914 report showed gas produced from the gulf accounted for just 10% of aggregate US gas production in August. “So any material production shut-ins from the storm are unlikely to have a material impact in reducing marketed supply, keeping storage at record levels,” the analysts said.

Since breaking through $75/bbl and faltering at $82/bbl, crude prices appear to be establishing a new trading range between $76 and $80/bbl, said analysts at Pritchard Capital Partners LLC in New Orleans. “Crude oil seems to be searching for long-term direction as concerns over depressed demand are being offset by speculation that the US government will increase stimulus spending, leading to further dollar weakness,” Pritchard Capital Partners said. “Nonetheless, given that crude appears to have found support at $76/bbl, well above the $65/bbl the market was discussing over the past few months, we expect the major exploration and production companies will view this as a positive sign that prices are unlikely to decline in the near future. As a result, we expect E&P budgets will increase year-over-year and that less projects to be deferred in 2010, which bodes well for major service companies.”

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said they see “very little evidence” that underlying market fundamentals in the overall economy—“particularly in the oil market”—are improving fast enough to justify crude prices in the $80/bbl range. They said, “Even in October oil demand is still pretty anemic, leading us to conclude that there are grave doubts that a serious recovery in oil demand—certainly as far as the Organization for Economic Cooperation and Development nations are concerned—will start at all in 2009.”

Energy prices
On Nov. 6, the December and January contracts for benchmark US light, sweet crude lost $2.19 each, closing respectively at $77.43/bbl and $78.09/bbl on the New York Mercantile Exchange. On the US spot market, WTI at Cushing, Okla., also was down by $2.19, matching the December futures contract at $77.43/bbl. Heating oil for November delivery decreased 5.41¢ to $2/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month declined 6.34¢ to $1.92/gal.

The December contract for natural gas dropped 18.7¢ to $4.60/MMbtu on NYMEX. On the spot market, gas at Henry Hub, La., fell 44¢ to $3.87/MMbtu.

In London, the December IPE contract for North Sea Brent lost $2.12 to $75.87/bbl. Gas oil for November dropped $32.50 to $607.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down $1.20 to $75.87/bbl Nov. 6. So far this year, OPEC’s basket price has averaged $58.66/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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