MARKET WATCH: Dollar, energy prices fall; unemployment rises

Sam Fletcher
OGJ Senior Writer

HOUSTON, Oct. 15 -- Energy prices slumped once more Oct. 14 in the New York market, pulled down by the decline in the broader equities market as an increase in new claims for unemployment assistance last week fed concerns about economic recovery.

Natural gas “was the biggest underperformer, falling 0.8% on the day as an injection of 91 bcf cut the year-over-year storage deficit by 31 to 118 bcf,” said analysts in the Houston office of Raymond James & Associates Inc. “As a result, energy stocks performed in line with the broader market,” they reported.

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “Jobless claims unexpectedly rose to 462,000 last week indicating that the US job market is still struggling. The dollar’s 0.7% decline against the euro also could not stop prices from ending lower yesterday due to the overall weak demand for the fuel. We expect that anemic demand combined with the high inventory level, which is 13% above the 5-year average, will continue to weigh on prices.”

The Energy Information Administration reported the injection of 91 bcf of natural gas into US underground storage in the week ended Oct. 8. That brought working gas in storage to 3.59 tcf, down 118 bcf from the same period a year ago but 247 bcf above the 5-year average (OGJ Online, Oct. 14, 2010).

EIA said inventories of benchmark US sweet, light crudes dipped by 400,000 bbl to 360.5 million bbl last week. Gasoline stocks dropped 1.8 million bbl to 218.2 million bbl in the same period. Distillate fuel inventories decreased 300,000 bbl to 172.2 million bbl.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “Stocks of visible products (crude plus clean petroleum products) had a draw of 3.2 million bbl and still have a long way to go before reaching the levels of last year.” He noted a 1.5 million bbl reduction of crude stocks on the “discounted” West Coast, compared with small builds in the Midwest and along the Gulf Coast that put them “close to the highs of the year.”

Jakob reported no shortage of crude oil stocks, although imports from Canada into the Midwest are still limited by the Enbridge Energy Partners LP’s reactivated 670,000 b/d 6A crude pipeline that was shut-in Sept. 9 because of a leak (OGJ Online, Oct. 12, 2010). He said, “With refinery runs seasonally off their peaks, the Midwest had a 1.3 million bbl stock build with Cushing, Okla., unchanged.” Approaching winter demand, heating oil stocks continued to build and are higher than a year ago,” he said.

“Gasoline stocks had a 1.8 million bbl stock draw and have lost 8 million bbl over the last 3 weeks. The overall stocks are still however at a multiyear high for the season,” Jakob said. “The strikes in France are extending and could start to have an impact on gasoline exports to the US. We are, however, out of the main driving season in the US, so refiners have plenty of time to rectify a drop of imports due to France. The US imports more gasoline and components from India than from France, and the impact on the US will really depend on whether the strikes are also extending to [other] ports. If the French ports all shut down as well, there will be little need to import gasoline into France to offset the loss of refinery production.”

Another report Oct. 15 showed US retail sales were up in September, the third increase in as many months after decline in May and June.

In other news, Federal Reserve Chairman Ben Bernanke said Oct. 15 the Fed is prepared to buy Treasury bonds in another effort to rejuvenate the economy, but Fed policymakers are not sure how big such a program should be. They are expected to announce a new Treasury purchase program at their next meeting Nov. 2-3.

Adam Sieminski, chief energy economist for Deutsche Bank in Washington, DC, said Asia and the Middle East are expected to account for nearly all of the world's oil demand growth over the next few years, “which creates the potential for surprises.”

He said, “China's record crude oil imports in September are a reminder of the importance of the country's strategic and commercial stockpiling for the physical market as well as to market sentiment. New strategic petroleum reserve [storage] tanks that will be ready next year pose an opportunity for China to add meaningfully to strategic reserves.”

Meanwhile, Sieminski said, “There is growing debate among meteorologists about the impact of what appears to be rapidly developing strong La Niña conditions on the winter ahead. The consensus is that it will be slightly warmer than normal one, which would imply weaker US natural gas demand. But La Nina conditions are associated with cold winters.”

At Standard New York Securities Inc., part of the Standard Bank Group, analyst Walter de Wet said, “The Organization of Petroleum Exporting Countries decided to maintain the production quotas unchanged on their meeting yesterday. Understandably, some members voiced their concerns about dollar devaluation, as it hurts their real income from oil exports (OGJ Online, Oct. 14, 2010).

Energy prices
The November contract for benchmark US light, sweet crudes declined 32¢ to $82.69/bbl Oct. 14 on the New York Mercantile Exchange. The December contract decreased 38¢ to $83.36/bbl. On the US spot market, West Texas Intermediate at Cushing was down 32¢ to $82.69/bbl. Heating oil for November delivery lost 1.68¢ to $2.28/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dropped 2.96¢ to $2.14/gal.

The November contract for natural gas was down 3.9¢ to $3.66/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 6¢ to $3.57/MMbtu.

In London, the November IPE contract for North Sea Brent declined 11¢ to $84.53/bbl. Gas oil for November lost $1.75 to $723.75/tonne.

The average price for OPEC’s basket of 12 benchmark crudes increased 5¢ to $80.95/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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