MARKET WATCH: Crude oil prices decline as gas prices rally

Following minimal declines over the previous two sessions, the front-month crude contract fell more than $2/bbl Oct. 19 in the New York market as disappointing quarterly earnings of some key companies undercut the equity market.

“The sell-off was not unique to oil but was fairly broad-based across industrial metals and gold. A marginally weaker dollar is providing some support to crude oil today,” said Walter de Wet at Standard New York Securities Inc., the Standard Bank Group. North Sea Brent crude fell during the session as long liquidation took its toll, he said.

Although the Oct. 19 sell-off of crude “would not be reflected in the data yet,” De Wet said, “we still see potential for long liquidation. As a percentage of open interest, net speculative length indicates a market that is extremely overstretched and vulnerable—10.6% compared with the 5-year average of 6.5%.”

Meanwhile, natural gas prices continued escalating on forecasts of colder weather.

The equity market wavered in light trading early in the Oct. 22 session with traders apparently waiting for quarterly earnings reports and the presidential election to pass, analysts said.

In Houston, analysts with Raymond James & Associates Inc. said, “Now that we are entering earnings season, the volatility of oil field service stocks usually increases sharply as earnings misses [or] beats drive investor speculation over the future earnings outlook of any given company. While we all pay attention to these short-term company-specific issues, we urge investors not to get too excited about a short-term ‘potential bottom’ in the oil service earnings. Instead, we think investors should remain cognizant of the potential for a meaningful pullback in oil prices over the next 6-9 months. Unfortunately for oil field service investors, the relatively tight historical correlation between oil prices and oil service stock prices suggests there is more downside for the oil service group as oil prices fall.”

Raymond James analysts also noted a report on The Australian publication’s website of recent large natural gas discoveries off Israel attracting growing interest from companies wanting to expand LNG business in the region. The report indicated international majors are on the sidelines in this play “due to the political complexity of doing business with both Israel and the Arab states.”

Energy prices

The November contract for benchmark US light, sweet crudes dropped $2.05 to $90.05/bbl Oct. 19 on the New York Mercantile Exchange. The December contract fell $2.09 to $90.44/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., followed the front-month futures price down $2.05 to $90.05/bbl.

Heating oil for November delivery lost 5.21¢ to $3.13/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 4.88¢ to $2.70/gal.

The November natural gas contract escalated 3¢ to $3.62/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 9¢ to $3.39/MMbtu.

In London, the December IPE contract for North Sea Brent was down $2.28 to $110.14/bbl. Gas oil for November was unchanged at $996.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes retreated 78¢ to $108.99/bbl. So far this year, OPEC’s basket price has averaged $110.13/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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