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 samf@ogjonline.com.

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