MARKET WATCH: Crude price falls, but gas climbs above $4/MMbtu

Sam Fletcher
OGJ Senior Writer

HOUSTON, Nov. 1 -- Price of the front-month crude futures contract fell 0.9% in the New York market Oct. 29, wiping out its gain from the previous session as the dollar inched up 0.2% against the euro, but natural gas continued to climb, up 4% to more than $4/MMbtu.

“Crude has been dominated by the currency markets lately as speculations about the size and timing of the second round of quantitative easing (QE2) [through the Federal Reserve Bank system] continue to swirl the markets,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “Crude limited its losses after the Commerce Department said that the gross domestic product grew by 2% annual rate in the third quarter vs. economists’ estimate of a 1.7% growth. However, consumer sentiments remain weak as the University of Michigan's index of consumer sentiment dropped to 67.7 in October from 67.9 a month earlier vs. economists' expectations of an increase to 68. As the economic recovery remains tepid, the Fed is expected to announce a sizable QE2 after its meeting on Nov. 2.”

Analysts in the Houston office of Raymond James & Associates Inc. said, “Crude has been trading in the $80-83/bbl range recently as traders wait for the Fed to formally announce what it intends to do to stimulate the US economy. Expect markets to react swiftly to any announcements made by Federal Reserve Chairman Ben Bernanke after the meeting of Fed policymakers.” They reported crude, gas, and the broader markets all were on the rise in early trading Nov. 1.

Sharma said the futures price of gas was up “on projections of a pick-up in the heating demand as the temperatures on the East Coast and parts of the Gulf Coast are expected to dip below normal this week.”

Walter de Wet at Standard New York Securities Inc., the Standard Bank Group, reported net gains last week of 19¢/bbl for front-month North Sea Brent crude and 26¢/bbl for front-month West Texas Intermediate. “Product cracks and refining margins took a double whammy from the ending of French strikes and the ending of the refining maintenance season in Europe and the US. The return of the idle refining capacity may add additional downward pressure on the time structure of the oil products,” he said.

US equity markets were basically unchanged last week “as everything was on hold in front of this busy week, which will include the US mid-term elections, the Federal Open Market Committee [policy-making arm of the Fed] meeting, and the nonfarm payroll [report] at the end of the week,” said Olivier Jakob at Petromatrix in Zug, Switzerland.

He said, “The world’s growth might be coming from Asia but so far this year, of the main markets, it is the mature economies of the Atlantic Basin that have outperformed in terms of returns.”

The third quarter US GDP showed growth in line with most expectations. “The main risk on that number is that a large part of the third quarter GDP growth is coming from the build-up of inventories,” said Jakob. “If the inventory build-up slows down in the fourth quarter it could become a negative for GDP growth. If consumer spending was strong at 2.6%, final sales were poor at 0.6%. Hence there is still some headwind for the US economy and this will leave the fourth quarter GDP at risk to a slowdown in the build-up of inventories.”

Energy prices
The December contract for benchmark US light, sweet crudes dropped 75¢ to $81.43/bbl Oct. 29 on the New York Mercantile Exchange. The January contract retreated 79¢ to $82.15/bbl. On the US spot market, WTI at Cushing, Okla., was down 75¢ to $81.43/bbl. Heating oil for November delivery decreased 2.34¢ to $2.22/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month slipped 0.94¢ to $2.10/gal.

The December contract for natural gas escalated 14.8¢ to $4.04/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 2¢ to $3.34/MMbtu.

In London, the December IPE contract for North Sea Brent fell 44¢ to $83.15/bbl. Gas oil for November lost $7.25 to $700.75/tonne.

The Organization of Petroleum Exporting Countries’ headquarters in Vienna were closed Nov. 1, so there was no update of the group’s 12 benchmark crudes.

Contact Sam Fletcher at samf@ogjonline.com.

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