MARKET WATCH: Crude oil prices climb; natural gas prices fall

Sam Fletcher
OGJ Senior Writer

HOUSTON, Nov. 2 -- Crude oil prices increased Nov. 1 as Saudi Arabia’s oil minister raised the potential ceiling for crude to $90/bbl, a level “that the typically $70-85/bbl range-bound commodity hasn't reached for over 2 years,” said analysts in the Houston office of Raymond James & Associates Inc.

“If only someone were brave enough to guess the right price for natural gas,” Raymond James analysts lamented after gas prices sank 5.3% in the same session, wiping out most of the gains since the roll-over of the contract in the New York market.

At a press conference in Singapore, Ali Al-Naimi, Saudi Arabia’s minister of petroleum resources and minerals, said consumers apparently are comfortable with crude prices of $70-90/bbl, up from the range of $70-80/bbl he previously endorsed (OGJ Online, Nov. 2, 2010). Taking a cue from that statement, market prices began to rise but failed to break out of the narrow range of $79-85/bbl in which the front-month crude contract traded through October, said Walter de Wet at Standard New York Securities Inc., the Standard Bank Group.

“The oil market drew strength yesterday from strong Purchasing Manager Indices from China, US, and UK,” De Wet reported. The front-month crude contract moved above $83/bbl in early trading Nov. 2 in New York. “It is likely oil will continue moving sideways within the narrow trading range while waiting for the Federal Reserve Bank’s announcement tomorrow,” he said.

Meanwhile, on the first trading day of November, “the broader markets remained flat in anticipation of the elections this week and Fed meeting the next couple days,” said Raymond James analysts.

Olivier Jakob at Petromatrix, Zug, Switzerland, pointed out, “The Federal Open Market Committee [the policy-making arm of the Federal Reserve Bank] starts its 2-day meeting today, and until the release of its decision tomorrow 15 min before the close of the crude oil session, trading flat price on crude will be in our opinion a very symmetrical trade subject more than anything else to the influence of positioning in front of that market input.”

The front-month crude contract “surged 93¢/bbl in the first 10 min of the Nov. 1 open session—the same pattern as the first 10 min of the previous Monday [Oct. 25],” Jakob noted. “Yes, the Chinese PMI was positive, but that was expected; and yes, the Saudi oil minister widened the acceptable price range…but those headlines came after the rally, not before it, and did not trigger any additional buying,” he said.

A trading range of $70-90 “brings by extrapolation to a midpoint at $80/bbl rather than the previous $75/bbl but does not differ too much from the 2010 actual range of $70-87/bbl,” Jakob said. “As to whether the price range is good for the world economy, we will just note that if the FOMC is currently meeting to decide on a massive interventionist plan, it is because the US economy growth is not strong enough and if the world is engaged in a currency war it is because there is not enough room for everybody to grow reasonably.”

Jakob said, “While the focus is on the additional buying power of the US Fed, Russian crude oil production has reached a new post-Soviet record in October; the Chinese are testing the first crude oil shipments on the new 300,000 b/d pipeline from Russia (the expected quantity for next year, the capacity of the pipeline is expected at double that rate); and the Brazilians are starting the first pilot production from the giant Tupi field only 3 years after discovery.” Brazil also announced last week the Libra field reserves (8-15 billion bbl) will be even bigger than Tupi (5-8 billion bbl). “That would make Libra the largest oil discovery in the Americas since Cantarell in 1976 and will contribute to push peak oil a little further back,” Jakob observed.

Energy prices
The December and January contracts for benchmark US sweet, light crudes both increased by $1.52 on Nov. 1 to respective closings of $82.95/bb and $83.67/bbl on the New York Mercantile Exchange.

On the US spot market, WTI at Cushing, Okla., rose the same amount to $82.95/bbl, in step with the front-month futures price. The new front-month December contract for heating oil bumped up 4¢ to $2.28/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month gained 3.35¢ to $2.09/gal.

The December natural gas contract fell 20.6¢ to $3.83/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 9¢ to $3.43/MMbtu.

In London, the December IPE contract for North Sea Brent crude was up $1.47 to $84.62/bbl. Gas oil for November jumped $11.50 to $712.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes gained $1.13 to $80.55/bbl. So far this year, OPEC’s basket price has averaged $75.72/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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