MARKET WATCH: Disappointing earnings drag down oil prices
Oil prices continued to dive Oct. 23, weighed down by lower-than-expected quarterly earnings reported by some blue-chip companies in the equity market, signaling a still-weak economy.
Traders “fled equities for the relative safety of Treasuries, sending the Standard & Poor’s 500 Index into a 1.4% slide,” said analysts in the Houston office of Raymond James & Associates Inc. “Commodities also felt pressure with crude futures dropping 2.2% and dragging energy indices down too,” they said. The SIG Oil Exploration & Production Index was down 2% while the Oil Service Index dropped 2.6%.
“However, it was a brighter day for natural gas futures, which rebound from the previous day's drop with a 2.4% gain coinciding with renewed cold weather forecasts,” Raymond James analysts reported.
“Amid continuing signs of at best tepid US recovery, markets do not need much to turn decidedly risk averse,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. He said the Oct. 23 “rout” of the equities market was sparked by a disappointing earnings report from E. I. du Pont de Nemours & Co., which also reduced its estimates for future earnings and announced plans to eliminate 1,500 jobs.
However, Ground reported “a weak recovery” of energy markets in early trading Oct. 24 after the Hong Kong & Shanghai Banking Corp. Ltd. (HSBC) Flash Purchasing Manager Index manufacturing number rose to 49.1 from 47.9 during September.
US inventories
The Energy Information Administration said Oct. 24 commercial US crude inventories jumped 5.9 million bbl to 375.1 million bbl in the week ended Oct. 19, far exceeding Wall Street’s consensus for an increase of 1.8 million bbl. Gasoline stocks for the same week climbed 1.4 million bbl to 198.6 million bbl, above analysts’ outlook for a 500,000 bbl gain. Both finished gasoline and blending components were up. Distillate fuel inventories declined 600,000 bbl to 118 million bbl. Analysts were expecting a bigger decrease of 1.2 million bbl.
Imports of crude into the US increased 476,000 b/d to 8.8 million b/d last week. In the 4 weeks through Oct. 19, US crude imports averaged 8.4 million b/d, down 396,000 b/d from the comparable period in 2011. Gasoline imports last week averaged 526,000 b/d, while distillate fuel imports averaged 59,000 b/d.
Crude input into US refineries dipped 17,000 b/d to 14.8 million b/d with units operating at 87.2% of capacity. Gasoline production decreased to 9 million b/d while distillate production was down to 4.4 million b/d.
Energy prices
The new front-month December contract for benchmark US sweet, light crudes fell $1.98 to $86.87/bbl Oct. 23 on the New York Mercantile Exchange. The January contract dropped $1.95 to $87.23/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.06 to $86.67/bbl in an effort to get back in step with the front-month futures price.
Heating oil for November delivery declined 3.33¢ to $3.04/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 4.25¢ to $2.61/gal.
The November natural gas contract regained 8.3¢ to $3.54/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., fell 14¢ to $3.35/MMbtu.
In London, the December IPE contract for North Sea Brent lost $1.19 to $108.25/bbl. Gas oil for November fell $22.50 to $954.75/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down $1.19 to $107.13/bbl.
Contact Sam Fletcher at [email protected].
About the Author
Sam Fletcher
Senior Writer
I'm third-generation blue-collar oil field worker, born in the great East Texas Field and completed high school in the Permian Basin of West Texas where I spent a couple of summers hustling jugs and loading shot holes on seismic crews. My family was oil field trash back when it was an insult instead of a brag on a bumper sticker. I enlisted in the US Army in 1961-1964 looking for a way out of a life of stoop-labor in the oil patch. I didn't succeed then, but a few years later when they passed a new GI Bill for Vietnam veterans, they backdated it to cover my period of enlistment and finally gave me the means to attend college. I'd wanted a career in journalism since my junior year in high school when I was editor of the school newspaper. I financed my college education with the GI bill, parttime work, and a few scholarships and earned a bachelor's degree and later a master's degree in mass communication at Texas Tech University. I worked some years on Texas daily newspapers and even taught journalism a couple of semesters at a junior college in San Antonio before joining the metropolitan Houston Post in 1973. In 1977 I became the energy reporter for the paper, primarily because I was the only writer who'd ever broke a sweat in sight of an oil rig. I covered the oil patch through its biggest boom in the 1970s, its worst depression in the 1980s, and its subsequent rise from the ashes as the industry reinvented itself yet again. When the Post folded in 1995, I made the switch to oil industry publications. At the start of the new century, I joined the Oil & Gas Journal, long the "Bible" of the oil industry. I've been writing about the oil and gas industry's successes and setbacks for a long time, and I've loved every minute of it.