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MARKET WATCH: Oil price tumbles, wiping out previous session's spike

Crude oil prices tumbled Nov. 17 amid renewed concerns about the Euro-zone crisis and rumors of a deadlock in Congressional super-committee negotiations on US debt, with the front-month crude contract dropping 4% back below $99/bbl and wiping out the price-spike from the previous session in the New York market.

Equity and commodity markets were shaken as yields on 10-year treasury bonds issued by financially troubled Spain rose to 6.8% Nov. 17, nearing the 7% level that earlier triggered bailouts of Portugal, Ireland, and Greece. Last week Italy’s 10-year bond yields surpassed 7%, contributing to a change in government. Italian bonds have since dropped back to 6.48% but are expected to remain in the danger zone for an extensive period.

However, the front-month natural gas contract gained 3% in New York after falling for six sessions. The increase was triggered by the government’s bullish report on US gas storage (OGJ Online, Nov. 17, 2011).

“Despite plenty of signs that the US economy continues to expand, the market is overwhelmed by the Euro-zone crisis,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Gasoline and distillate cracks improved as oil products as usual were relatively slow in responding to sharp moves in the market, resulting in stronger refining margins.”

Zhang said, “The term structure of Brent softened significantly, in particularly at the very front end of the curve, as supply gradually improves. West Texas Intermediate structure also weakened as the rally in structure the day before was largely led by flat price moves rather than underlying fundamentals.”

In Europe, total oil product inventories in Amsterdam, Rotterdam, and Antwerp (ARA) grew by 55,000 tonnes last week with a strong increase in gas oil and gains in gasoline and naphtha. “The sharp rise in gas oil stock was largely matched by the sharp fall in jet fuel and kerosine inventories. Net result is that middle-distillate inventories were broadly unchanged,” said Zhang. “Meanwhile, ARA fuel oil inventories stayed at seasonal high, which is in sharp contrast with the strong fuel crack. That said, we do expect the fuel oil crack to weaken. Total ARA product stocks stayed significantly below the seasonal levels of the previous 2 years.”

He also noted a 1.6 million bbl drop in total oil product inventories last week in Singapore. “The middle-distillate market in Singapore remains tight, and its inventories are now close to the seasonal low during the previous 5 years. We anticipate a tight middle-distillate market throughout this winter and expect potential spikes in middle-distillate cracks,” Zhang reported.

Meanwhile, although negotiations continue, the Congressional super-committee trying to trim the US deficit appears at an impasse. If it fails to reach agreement by Nov. 23, some $1.2 trillion in automatic spending cuts of defense and domestic discretionary programs will be implemented in 2013.

In other news, Adam Sieminski, chief energy economist, Deutsche Bank AG, Washington, DC, estimated US railcar shipments of crude this month “are running at almost 300,000 b/d above year-ago levels, with most of that growth in the US Midcontinent.” He said, “On our estimates, variable transportation costs for these shipments might set a near-term lower-bound on the Brent-WTI spread.”

Sieminski also reported, “Gas price bulls must be counting on a further deterioration in the gas rig count to reduce the recent trend in storage builds. However, our end winter storage forecast for 1.9 tcf of gas puts us slightly higher than consensus forecasts.”

Energy prices

The December contract for benchmark US light, sweet crudes traded for $98.28-103.37/bbl Nov. 17 on the New York Mercantile Exchange before closing at $98.82/bbl, down $3.77 for the day. The January contract dropped $3.67 to $98.93/bbl. On the US spot market, WTI at Cushing, Okla., was down $3.77 to $98.82/bbl.

The price decline of heating oil for January delivery steepened, down 5.14¢ to $3.08/gal on NYMEX. Reformulated stock for oxygenate blending for the same month fell 12.02¢ to $2.51/gal.

The December natural gas contract regained 6.6¢ to $3.41/MMbtu on NYMEX, after falling through six sessions from $3.75/MMbtu. The Nov. 17 US spot market price for gas at Henry Hub, La., was unavailable at press time.

In London, the January IPE contract for North Sea Brent fell further, down $3.66 to $108.22/bbl. Gas oil for December lost $21.25 to $973/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes declined $1.43 to $110.83/bbl.

Contact Sam Fletcher at samf@ogjonline.com.


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