MARKET WATCH: Energy prices continue to decline

Energy prices continued falling Dec. 15, although not as radically as in the previous session, with markets still concerned about the European economic crisis.

Fitch Ratings Ltd. downgraded eight global banks, while Standard & Poor's Financial Services LLC downgraded 10 Spanish banks. “The risk that S&P downgrades Euro-zone sovereigns remains high after the uninspiring European Union summit last week. If the downgrade materializes, the market can come under severe pressure,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

“Looking ahead, the oil market is likely to be swung by development of the macroenvironment, in particular the Euro-zone debt crisis,” he said. “However, the physical market remained tight, with the backwardation in Brent structure remaining firm. Refining margins also show signs of recovery. Both should help to support the oil market. Meanwhile, geopolitical risks have been put on the backburner for now, but it could come back to push volatility further up.”

In Houston, analysts at Raymond James & Associates Inc. reported, “Yesterday, the S&P 500 Index was up slightly in response to stronger US economic data, despite renewed concerns over Europe's toll on the global economy. The Labor Department reported that last week's initial jobless claims were at their lowest levels since May 2008, while a second report noted that Mid-Atlantic manufacturing activity has spiked into December. That offset gloomy comments from International Monetary Fund head Christine Lagarde, though crude followed global markets lower, falling 1%.”

Lagarde, IMF managing director, told a Dec. 15 press conference the global economic situation is “quite gloomy,” with the European crisis escalating to the point where no one group can prevent a possible Great Depression like that of the 1930s. She called for international cooperation to avoid the danger.

Meanwhile, Zhang said, “Product cracks were firmer across the barrel, resulting in stronger refining margins. The Brent structure strengthened again due to continuous tightness in the physical market. Furthermore, physical crude differentials also rose.”

Energy prices

The January contract for benchmark US light, sweet crudes dropped $1.08 to $93.87/bbl on the New York Mercantile Exchange. The February contract lost $1.07 to $94.07/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., in a rare move broke step with the front-month crude futures contract price, falling $1.73 to $93.22/bbl.

Heating oil for January delivery dipped 0.74¢ to $2.82/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 1.6¢ to $2.49/gal.

The January natural gas contract was down 0.9¢ to $3.13/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 1.3¢ to $3.06/MMbtu.

In London, the expiring January IPE contract for North Sea Brent inched up 7¢ to $105.09/bbl. Gas oil for January lost $6.50 to $898.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped $2.28 to $104.60/bbl.

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