MARKET WATCH: Crude oil price slips lower as gas makes small gain

Sam Fletcher
OGJ Senior Writer

HOUSTON, Oct. 13 -- Crude oil prices continued to slip lower Oct. 12 with the front-month contract down 0.7% in the New York market amid expectations the Organization of Petroleum Exporting Countries will make no changes in its official production quotas at its Oct. 14 meeting in Vienna. Natural gas rose 0.8%, possibly helped by short-covering.

Indications the US Federal Reserve System will deliver more “quantitative easing” (QE) to stimulate the economy sent the broader stock market up and the dollar down, said analysts in the Houston office of Raymond James & Associates Inc. “Energy stocks were mixed as the SIG Oil Exploration & Production Index (EPX) followed crude south, falling 0.3%, and the oil service index outperformed the broader market, up 1.7%,” they said.

With the pending imposition of another round of economic stimulus as QE2, Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The dollar-bashing can therefore continue, but we will watch the all-time low on the yen/dollar at 79.75 as we remain unsure how low further the dollar can go before creating greater global economic imbalances.”

He said, “The Fed is already conducting some QE through the permanent open market operation (POMO), and we will watch today for the release of the schedule of the next POMO operations (there were $27 billion of POMO operations between Sept. 15 and Oct. 6).

The price spread between West Texas Intermediate and North Sea Brent continued to narrow, said analyst Walter de Wet at Standard New York Securities Inc., part of the Standard Bank Group. “European product cracks and structure had the support of the prolonged French strike [at the ports of Fos and Lavera that disrupted crude supplies to several refineries],” he said.

De Wet said, “Gas oil and heating oil cracks are off the recent high, as the market [indicates] the rally had been overdone.”

He said, “Speculative money flowing into oil has jumped in recent weeks” increasing to a level last seen in April and close to the all-time high set in early April. “This partly explains the recent rally in the oil price,” said De Wet.

Because of the US Columbus Day holiday observed by federal workers, the weekly inventories report by the Energy Information Administration will be delayed until Oct. 14.

Jakob also noted, “Chinese crude oil imports in September are at a new record high (5.7 million b/d) and a strong 1.5 million b/d higher than September of 2009, but the average for the third quarter is 640,000 b/d higher than last year as imports in July were lower than a year ago. China remains a great marketing line for being bullish oil, but what really counts for oil prices are the global balances when accounting for the Chinese growth in demand.

Meanwhile, the latest update of the world supply and demand by the International Energy Agency in Paris calculates a call for OPEC crude oil about unchanged in 2011 vs. 2010 (29.3 million b/d vs. 29.2 million b/d). Given that OPEC is currently producing 29.3 million b/d, this prints a scenario of no global stock change in 2011. The IEA estimates that total floating storage increased by about 4 million bbl in September and all in crude oil. The IEA global picture is not enough to call for a return of structural backwardation in 2011 especially given the amount of spare production capacity available within OPEC.

Energy prices
The November contract for benchmark US light, sweet crudes declined 54¢ to $81.67/bbl Oct. 12 on the New York Mercantile Exchange. The December contract decreased 56¢ to $82.45/bbl. On the US spot market, WTI at Cushing, Okla., was down 54¢ to $81.67/bbl. Heating oil for November delivery dipped 1.65¢ to $2.26/gal on NYMEX. RBOB for the same month lost 4.16¢ to $2.12/gal.

The November natural gas contract regained 2.8¢ to $3.63/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 1¢ to $3.45/MMbtu.

In London, the November IPE contract for North Sea Brent crude declined 22¢ to $83.50/bbl. Gas oil for October was unchanged at $722.75/tonne.

The average price for OPEC’s basket of 12 reference crudes fell 80¢ to $79.64/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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