MARKET WATCH: Oil prices rises as dollar hits 15-year low against yen

Sam Fletcher
OGJ Senior Writer

HOUSTON, Oct. 26 -- Prices for crude and petroleum products continued to rise Oct. 25 in the New York market as the US dollar reversed gains from the previous two sessions and dropped to a 15-year low against the Japanese yen after finance leaders from the Group of 20 (G20) countries agreed to avoid “competitive devaluation” of currencies at a weekend meeting in South Korea.

“A weaker dollar sent crude up 1% yesterday as the inverse correlation between the dollar and crude reached its highest point in over 14 months,” said analysts in the Houston office of Raymond James & Associates Inc. “Natural gas fell to another 13-month low and closed down 0.4%…as gas inventories remain 8% above the 5-year average and forecasts now call for warmer-than-usual weather on the East Coast and Midwest. Energy stocks followed oil upwards with the Oil Service Index and Standard & Poor’s 1500 Oil & Gas Exploration & Production subindustry index finishing up 0.3% and inline with the broader markets.”

The Dow Jones Industrial Average hit a near 6-month high Oct. 25 because of the sinking dollar. Oil and gas prices were down in early trading Oct. 26.

Crude hit an intraday high of $83.28/bbl in the New York market before closing lower Oct. 25 “as the dollar pared losses against the euro and workers at some of the French refineries ended their strikes,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “Although the prices remain shackled to the currency markets, better-than-expected housing numbers also lifted some spirits in the broader market. Sales of US existing homes increased by 10% in September to 4.53 million annual rate vs. consensus of a 4.3 million annual rate. This was the biggest increase on record in September and a very positive sign, as a sustained economic recovery will need the stabilization of the housing market,” he said.

At Standard New York Securities Inc., part of the Standard Bank Group, analysts reported, “We had the news yesterday that workers at 3 out of the 12 refineries in France had voted to end their strikes. The others are likely to follow suit. The US Department of Energy inventory levels due out tomorrow will give some hints on the change of the trans-Atlantic product arbitrage caused by the strike. In the meantime, oil has retreated along with the strengthening dollar and is likely to trade inside its narrow range-bound pattern before the US Federal Reserve’s meeting [Nov. 2-3].”

Meanwhile, Olivier Jakob at Petromatrix, Zug, Switzerland, lashed out at the economic polices of Federal Reserve Chairman Ben Bernanke. “‘Bernankeconomics’ reached a new point of absurdity when Treasury inflation-protected securities (TIPS) were being bought yesterday with a negative yield (first time in history, of course). We had the opinion that the overall systemic risk is higher than suggested by the volatility index given the extreme correlations, and with TIPS bought at negative yields we have to increase our assessment of systemic risk a notch higher. The Fed is turning the overall markets upside down, but the laws of gravity can not be defied forever.”

Jakob said, “If September had been characterized by the weakness of the dollar, October is characterized by the stability of the euro. Of course, the European Central Bank is not intervening, so we can only observe that market forces have drawn so far in October a very strong line in the sand for the euro….” He said, “That resistance keeps on being tested on an intraday basis but fails to be confirmed on a closing basis.”

With the dollar at such a low level to the yen, Jakob said, “We can not be sure of the timing (before or after the Fed meeting), but it is a given that the Bank of Japan will intervene again.” Oct. 26 marked yet another “permanent open market operation” for the Fed, which he noted, “still has to buy $18 billion of Treasuries from primary dealers over the next five operations (i.e. $3.6 billion on average by operation).”

Energy prices
The December contract for benchmark US sweet, light crudes climbed 83¢ to close at $82.52/bbl Oct. 25 on the New York Mercantile Exchange. The January contract advanced 76¢ to $83.21/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 81¢ to $82/bbl, still trying to get in sync with the front-month futures price. Heating oil for November delivery inched up 0.34¢ to $2.26/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 1.35¢ to $2.08/gal.

The November natural gas contract dropped 1.5¢ to $3.32/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 0.8¢ to $3.18/MMbtu.

In London, the December IPE contract for North Sea Brent crude was up 58¢ to $83.54/bbl. Gas oil for November gained $10.25 to $710.25/tonne.

The headquarters for the Organization of Petroleum Exporting Countries was closed Oct. 26, so there was no update of price for its basket of 12 reference crudes.

Contact Sam Fletcher at samf@ogjonline.com.

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