MARKET WATCH: Energy prices apparently weathering financial woes in Europe

Crude oil prices generally continued to creep higher in mixed trading in the New York market Nov. 2, and equity markets improved despite the financial turmoil that is roiling Europe.

Despite pressure from his own and opposition parties, Greek Prime Minister George Papandreou refused to resign during an emergency cabinet meeting Nov. 3 and reportedly has scrapped his plan for a referendum on the government’s unpopular austerity program. He now faces a conference vote in his government.

Papandreou’s surprise call for a public referendum earlier this week angered creditors and government leaders of the 16 other countries in the Euro-zone and jeopardized the financial bailout package for Greece that was hammered out last week by the European Union. In the aftermath, the Italian government is in trouble because it hasn’t produced a plan to deal with a mountain of sovereign debt, and Portugal wants more flexible terms for its bailout.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “The December period is always a concern for cash liquidity issues. Yesterday, the European Financial Stability Facility pulled the plug on a planned €3 billion 10-year bond sale due to ‘market conditions.’ We’ll keep an eye on the Italian 10-year bond yields.”

In the interim, Jakob reported, “Germany showed the first increase in unemployment since February 2010, its Purchasing Managers' Index fell below 50 (49.1) and the European PMI (as reported by data provider Makrit) shrank for the third month in a row deeper into contraction levels(with new orders falling at the fastest pace since May 2009). Meanwhile the latest oil demand data for Spain shows gasoline demand in September down 6.9% vs. last year and diesel down 3.9%.”

The European Central Bank unexpectedly announced Nov. 3 it will cut interest rates to 1.25% in an attempt to stimulate the continent’s economy.

“It is more than a little ironic that a popular referendum in the ‘cradle of democracy’ could bring down the entire Euro-zone experiment, but rest assured, Brussels will try its hardest to make sure democracy doesn't get in its way,” said analysts in the Houston office of Raymond James & Associates Inc. “Despite Europe's mounting tensions, the markets bounced yesterday, with the Standard & Poor’s 500 Index up a solid 1.6%.

They said, “While the OSX [Oil Service Index] paralleled the broader market, the EPX [SIG Oil Exploration & Production Index] jumped 5.7% on strong earnings from major E&P companies. Crude gave up early gains on a larger than expected build in inventories, while gas was down 1%. All eyes today are on Cannes, where the G-20 leaders are…deciding the fate of the global economy.”

In other news, Jakob said, “While the focus is currently on the [Group of 20 meeting in Cannes Nov. 3-4], we want to keep in mind that the International Atomic Energy Agency (IAEA) board of governors meeting is on Nov. 17, and there are strong indications that an IAEA report will already be circulating next week highlighting the military aspect of the Iranian nuclear program. We are already starting to see more stories being printed about the possibilities of military strikes on Iran (yesterday Israel performed a test launch of a ballistic long-range missile). While we consider this to be part of the normal pressure-building to push China and Russia into taking a stronger stance against Iran, we nonetheless have to consider that Iran, nukes, and military strikes should become an increasing part of the trading universe in the coming weeks. And we know how markets will like that especially as we head towards the end of the year.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “The market needs to navigate through a flood of macroeconomic data and central bank policy announcements this week, with focuses on PMI and ISM [Institute for Supply Management] indices for the US and Europe, Federal Open Market Committee [the policy-making arm of the Federal Reserve Bank], and ECB policy meetings and the US non-farm payrolls.”

Among other factors that may impact equity and commodity markets, the government-controlled Freddie Mac lost $6 billion, or $1.86/share, in the third quarter, up from a $4.1 billion loss in the same quarter. It has asked for $6 billion to make up that loss, the largest bite on taxpayers since April 2010.

The US Department of Labor reported new applications for unemployment benefits dropped 9,000 to a seasonally adjusted 397,000, the lowest level in 5 weeks. It's the third time initial applications have fallen below 400,000 since April, yet unemployment remains above 9%.

US inventories

The Energy Information Administration reported the injection of 78 bcf of natural gas into US underground storage in the week ended Oct. 28, up from the Wall Street consensus for a 70 bcf input. That raised the amount of working gas in storage to nearly 3.8 tcf. Stocks now are 17 bcf less than in the comparable period last year and 201 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories increased 1.8 million bbl to 339.5 million bbl last week. 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 (OGJ Online, Nov. 2, 2011).

Energy prices

The December contract for benchmark US sweet, light crudes increased 32¢ to $92.51/bbl Nov. 2 on the New York Mercantile Exchange. The January contract advanced 30¢ to $92.35/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 32¢ to $92.51/bbl.

Heating oil for December delivery declined 3.72¢ to $3/gal on NYMEX. However, reformulated blend stock for oxygenate blending for the same month inched up 0.28¢ to $2.63/gal.

The December natural gas contract decreased 3.2¢ to $3.75/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 7.5¢ to $3.43/MMbtu.

In London, the December IPE contract for North Sea Brent lost 20¢ to $109.34/bbl. The price of gas oil for November continued to seesaw, up $22.25 to $961.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes jumped by $2.30 to $108.65/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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