MARKET WATCH: Oil, gas prices tumble amid fear of economic slowdown

Energy prices continued to tumble Oct. 22 despite increased turmoil in the Middle East, with front-month benchmark crude down nearly 2% in New York as fear of a global economic slowdown overcame worry of supply disruptions.

“Natural gas prices fell nearly 5% [in New York] as oversupply fears caused some to perceive the recent rally as overextended,” said analysts in the Houston office of Raymond James & Associates Inc. The Energy Information Administration reported 51 bcf of natural gas injected into US underground storage in the week ended Oct. 12, above Wall Street’s consensus for 47 bcf. This increased working gas in storage to 3.776 tcf, up 181 bcf from the comparable period a year ago and 249 bcf above the 5-year average (OGJ Online, Oct. 18, 2012).

The Oil Service Index and the SIG Oil Exploration & Production Index followed commodities down by 0.5% and 1.6%, respectively. The boarder market also had its ups and downs with the Dow Jones Industrial Average at one point trading “down more than 100 points before staging a furious rally in the final hour to end the day roughly flat,” Raymond James analysts reported. Crude and broader markets were “notably lower” in early trading Oct. 23, but natural gas was on the rise.

“This time it was West Texas Intermediate that was under greater pressure,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “Amid general pessimism over the prospects for the global economy, the restart of the TransCanada Keystone pipeline weighed further on WTI. Another delay in the restart of the Buzzard field in the North Sea, together with Royal Dutch Shell PLC declaring force majeure on its Nigerian Bonny Light and Forcados exports, limited the downside in Brent.”

For now, Ground expects “another slow day for data, with Euro-zone consumer confidence and the Richmond Federal Reserve Bank’s manufacturing index the only noteworthy releases. Unsurprisingly, today’s advance reading of the Euro-zone consumer confidence is expected to remain weak at minus 25.9 for October [the same as September] weighed down by the persistently poor current economic conditions and economic outlook components. A weak reading here could spell euro weakness and consequently weigh on commodity prices.”

Manufacturing activity in the Richmond Fed district is expected to improve marginally. “Consensus is for the index to climb to 5 in October from 4 in the previous month. September’s number showed a negative reading for employment, which was offset by positive readings on the shipments and new orders components. Here too a weaker reading, we believe, would be negative for oil prices, especially WTI, as it might see demand concerns resurface. We believe that the risks for both these releases are tilted towards the downside.”

Energy prices

The November contract for benchmark US sweet, light crudes dropped $1.32 to $88.73/bbl Oct. 22 on the New York Mercantile Exchange. The December contract fell $1.79 to $88.65/bbl. On the US spot market, WTI at Cushing, Okla., followed the front-month futures contract down $1.32 to $88.73/bbl.

Heating oil for November delivery lost 5.78¢ to $3.08/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 4.88¢ to $2.65/gal.

The February natural gas contract plunged 16.5¢ to $3.45/MMbtu on NYMEX, giving back most of its gains from the previous three sessions. On the US spot market, gas at Henry Hub, La., climbed 10¢ to $3.49/MMbtu.

In London, the December IPE contract for North Sea Brent retreated 70¢ to $109.44/bbl. Gas oil for November fell $19.25 to $977.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down $1.86 to $107.13/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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