MARKET WATCH: Oil, gas prices retreat from strong rebound

Despite a strong rebound in the previous session, crude oil and natural gas prices fell Oct. 5 and continued to decline in early trading Oct. 8 on weaker economic indicators and renewed concerns over Europe.

Front-month North Sea Brent is still trading around its 200-day moving average, but West Texas Intermediate remained weak with its front-month contract trading below $90/bbl. “We believe that the risk is for crude oil to move lower, rather than higher,” said Walter de Wet at Standard New York Securities Inc., the Standard Bank Group.

Investors seemed to ignore geopolitical tension in the Middle East—“perhaps a sign that risk appetite is fading,” De Wet said. Turkey’s military retaliated against cross-border shelling from Syria for the 6th consecutive day (OGJ Online, Oct. 5, 2012).

“The market remains plagued by concerns over unseasonably high US inventories and increasing supply,” De Wet reported. Despite declines in the past 2 weeks, net speculative length in the crude futures market “remains extremely high,” indicating “a market that is extremely overstretched and vulnerable,” De Wet said. In the midterm, however, he said, “Any downside will be lessened by the Federal Reserve Bank’s promise of liquidity and ongoing geopolitical risks.”

In Houston, analysts at Raymond James & Associates Inc. said, “Markets started off the fourth quarter on a strong note on positive economic data, as the Standard & Poor’s 500 Index gained 1.4% on the week. Energy did not fare as well, as the EPX (SIG Oil Exploration & Production Index) and OSX (Oil Service Index) largely followed collapsing crude prices, closing down 1% and 2%, respectively. Meanwhile, natural gas gained 2% [net for the week] as investors spotted colder weather ahead. Heading into earnings season, investors will have to balance their focus on macro trends with company-specific fundamentals in the context of languishing global growth.”

Meanwhile, European and US markets were down Oct. 8 after the World Bank said a more pronounced slowdown of the Chinese economy is possible and reduced its overall growth forecast for developing countries in Asia, undercutting.

In other news, Hugo Chavez won the presidential election in Venezuela for his third consecutive 6-year term. Reported returns were 54% for Chavez and 45% for his social democrat challenger Henrique Capriles in a bitterly fought race—the “closest margin of victory” ever for Chavez, Raymond James analysts said. “With Chavez retaining control, don't expect major foreign investment or production gains in the country anytime soon. Venezuela's oil production has plummeted around 30% since 2000.”

Energy prices

The November contract for benchmark US light, sweet crudes dropped $1.83 to $89.88/bbl Oct. 5 on the New York Mercantile Exchange. The December contract lost $1.80 to $90.27/bbl. On the US spot market, WTI at Cushing, Okla., trailed the front futures contract down $1.83 to $89.88/bbl.

Heating oil for November delivery declined 3.25¢ to $3.16/gal on NYMEX. Reformulated stock for oxygenate blending for the same month, however, inched up 0.96¢ $2.95/gal.

The November natural gas contract gave back most of its gain from the previous session, down 1¢ to $3.40/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 4¢ to $3.19/MMbtu.

In London, the November IPE contract for North Sea Brent retreated 56¢ to $112.02/bbl. Gas oil for October escalated by $10.50 to $989.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes regained $1.78 to $108.77/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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