MARKET WATCH: Crude tops $90/bbl for first time in 26 months

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 27 -- Crude climbed above $90/bbl Dec. 23 in the New York market for the first time since October 2008, due to increased demand from US holiday travel and cold weather on the East Coast.

“A bullish crude inventories report…also provided some support to prices,” said analysts in the Houston office of Raymond James & Associates Inc. “Unfortunately, China stepped in as ‘The Grinch,’ raising its benchmark 1-year lending and deposit rates to cool its red hot economy, snapping oil's rally.”

The Energy Information Administration said last week commercial US crude inventories fell 5.3 million bbl to an above-average 340.7 million bbl in the week ended Dec. 17, exceeding Wall Street’s consensus for a 3.4 million bbl drop. Gasoline stocks grew by 2.4 million bbl to 217.2 million bbl, EIA reported, outstripping analysts’ predictions of a 1.5 million bbl increase. Gasoline stocks also are above average for this time of year with both finished gasoline and blending components increasing. Distillate fuel inventories decreased 600,000 bbl to 160.7 million bbl, just above average. The markets had expected no change.

On the last trading day before Christmas, Raymond James reported, “The broader markets remained little changed as investors looked forward to a long weekend with friends and family, while energy indices were marginally up. Prior to the opening bell, oil, gas, and the broader market are all looking to open in the red as traders begin to balance their checkbooks after spending a little too much on Christmas presents.” The National Weather Service's Jan. 1-5 outlook is for a high probability of below-average temperatures to descend upon the western half of the US.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “US stocks were up again for the week.” The Standard & Poor’s 500 index gained 1.03% in the week. It was up 12.7% for the year to date and 6.46% for December, with most gains in the energy and financial sectors.

Jakob noted some of the “most influential” financial institutions expect the S&P to return to early 2007 levels in the coming year. However, he said those levels can not obtained without a strong energy sector, which would require oil prices of $100/bbl or higher, not hovering around $80/bbl as they have recently.

“The energy sector has been a very strong contributor to the recovery of the S&P 500, and the energy sector has been highly correlated to the flat price of crude oil, which itself has been highly correlated to the net West Texas Intermediate positions held by large speculators,” Jakob said. “The correlation between the net positions held by large speculators in WTI futures and WTI prices is much higher than in previous years; in 2008 there was a very strong rally in oil but with a non-existent correlation to the positions held by the large speculators. As large speculators drive the price of WTI, and as WTI drives the energy sector (equities), this makes the sustainability of the rally in the S&P somewhat dependent of the action of the large speculators in WTI. With the collapse of the financial sector, the S&P has become over-dependent on the oil sector for maintaining the value of the index, but the danger on this dependence is evident as at a certain level the higher oil prices start to work against the other sectors.”

The latest data showed jobless claims flat for the week but with a very small increase in the 4-week average. The durable goods orders for November were below expectations (down 1.3% vs. a consensus of minus 0.6%) while October was revised lower, from a negative 0.9% to a negative 3.1%. Personal spending at 0.4% was slightly below the consensus of 0.5%, but October was revised higher from 0.4% to 0.7%.

“That data point is healthy, unlike the new home sales that were a continued disaster,” Jakob said.

Energy prices
The February contract for benchmark US light, sweet crudes escalated by $1.03 to $91.51/bbl Dec. 23 on the New York Mercantile Exchange. The March contract climbed 95¢ to $92.16/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.73 to $92.21/bbl. Heating oil for January delivery increased 1.23¢ to $2.54/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month advanced 1.81¢ to $2.44/gal.

The January natural gas contract dropped 6.9¢ to $4.08/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 7.6¢ to $4.09/MMbtu.

In London, the February IPE contract for North Sea Brent crude gained 60¢ to $94.25/bbl, a sizeable premium over WTI’s price. Gas oil for January increased $3.50 to $784.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 57¢ to $90.73/bbl on Dec. 24. With less than a week left in 2010, OPEC’s basket price has averaged $77.20/bbl so far this year, up from an average $61.06/bbl in 2009.

Contact Sam Fletcher at samf@ogjonline.com.

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