MARKET WATCH: Crude oil prices little affected as stock market takes beating

The stock market took a beating Nov. 1, but strangely there was little reaction in oil markets to the Greek government’s surprise decision to submit its unpopular austerity program to a referendum early next year—a move that many expect will sink a Euro-zone bailout of the financially strapped country.

Angry European leaders summoned Greek Prime Minister George Papandreou to a meeting in Cannes that is likely to be the equivalent to a behind-the-woodshed whipping of a bad boy. If Greek voters reject the austerity program, Greece certainly will default on its sovereign debt and may be forced to drop the euro as its currency. That could be the doom of several banks with large holdings in Greek bonds and again put the world economy in recession.

Meanwhile, the Associated Press reported, “The wait is ramping up the pressure on Italy, the Euro-zone's third-largest economy, whose debts are enormous but which is considered too big to be bailed out.”

The resulting turmoil likely will heat up the Nov. 3-4 meeting of the Group of 20 industrial and developing nations.

“It's stunning how market sentiment can shift on a dime in just 48 hr; amid the renewed Euro-zone uncertainty, the Dow Jones Industrial Average dropped nearly 300 points yesterday, wiping out a quarter of its October gains,” said analysts in the Houston office of Raymond James & Associates Inc. Stocks of oil service and exploration and production companies, however, fell victim to the broader market. In early trading Nov. 2, Raymond James analysts said, “The futures are looking to bounce after the big losses earlier this week.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “Between the Greek and the MF Global crisis we don’t know which one is clearer. Greece by going through a vote of confidence and insisting to hold a referendum has been able to undo all the ‘feel-good’ rally that followed the European Union rescue deal of [Oct. 27].” He said, “The focus yesterday was on Greece, but Italy could come back to front-stage given that its 10-year yield rose yesterday to 6.2%.”

MF Global Holdings Ltd., New York, filed for Chapter 11 protection Oct. 31—the eighth-largest company in US history to seek bankruptcy, according to news sources.

US inventories

The Energy Information Administration reported Nov. 2 commercial US crude inventories increased 1.8 million bbl to 339.5 million bbl in the week ended Oct.28. Gasoline stocks were up 1.4 million bbl to 206.3 million bbl in the same period. Inventories of both finished gasoline and blending components increased. However, distillate fuel inventories fell 3.6 million bbl to 141.9 million bbl.

Imports of crude into the US dropped 419,000 b/d to 9 million b/d last week. In the 4 weeks through Oct. 28, crude imports averaged 8.8 million b/d, up 142,000 b/d from the comparable period a year ago. Gasoline imports last week averaged 781,000 b/d; distillate fuel imports averaged 122,000 b/d.

The input of crude into US refineries was up 33,000 b/d to 14.7 million b/d last week with units operating at 85.3% of capacity. Gasoline production increased to 9.1 million b/d while distillate fuel production increased to 4.7 million b/d.

Energy prices

The December contract for benchmark US light, sweet crude traded as low as $89.07/bbl Nov. 1 before closing at $92.19/bbl, down $1 for the day on the New York Mercantile Exchange. James Zhang at Standard New York Securities Inc., the Standard Bank Group, reported, “In the initial trading hours, oil was heavily sold…. However, the market managed an impressive rally towards the end of the trading session.” He also reported, “Refining margins softened slightly on weaker middle-distillate cracks, while the gasoline crack was firmer. The Brent structure strengthened again on news that there has been delays of Forties cargos due to further problems at the Buzzard field in the North Sea.”

The January contract lost $1.03 to $92.05/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., declined $1 to $92.19/bbl.

Heating oil for December delivery decreased 2.04¢ to $3.04/gal on NYMEX. However, reformulated stock for oxygenate blending for the same month gained 1.87¢ to $2.62/gal.

The December natural gas contract fell 15.3¢ to $3.78/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped $12.6¢ to $3.50/MMbtu.

In London, the December IPE contract for North Sea Brent dipped just 2¢ to $109.54/bbl. Gas oil for November lost $11.50 to $939/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down 77¢ to $106.35/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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