MARKET WATCH: Oil price slips lower but ends higher for week

Energy prices slipped lower Oct. 12 in continued seesaw fluctuations, but crude finished the week $1.98/bbl higher in the New York market than its closing price a week earlier.

However, Walter de Wet at Standard New York Securities Inc., the Standard Bank Group, reported Oct. 15, “Crude oil prices are marginally lower this morning. The Brent crude front-month contract is trading at around $114.50/bbl.”

He said, “Ongoing tensions over Iran’s nuclear program [and] the threat of a spillover of the Syrian civil war into other countries in that region are now raising concerns. The market’s attention at present is captured by the escalating conflict between Syria and Turkey. The main concern is that an escalating conflict between the two countries could result in a disruption of the Kirkuk-Ceyhan pipeline (which transports oil from Iraq), as it runs through southern Turkey near the Syrian border. However, we feel that this concern is perhaps overdone. While the capacity of the pipeline is reportedly 1.6 million b/d (which would be over half of Iraq’s current production), approximately only 400,000 b/d was pumped through it in 2011.”

Based on tensions between Turkey and Syria and “the extreme level of speculative length” in the crude futures market, De Wet sees increased risk for a corrective decline in oil prices. A reduction in Middle East tension could result in an abrupt sell-off, he said.

In Houston, analysts at Raymond James & Associates Inc. said last week was “the worst week since June” for the equity market because of concerns of weakness in third quarter earnings. Standard & Poor’s 500 Index closed down 2% for the week, while the SIG Oil Exploration & Production Index gained 2.7% on strong commodity prices. “Natural gas shot up 6% on bullish storage data” last week, they said. This week, financial analysts will be watching the earnings reports of more than 230 companies and new data on China’s gross domestic products.

In other news, Hugo Chavez recently won his third consecutive 6-year term as president of Venezuela, “with little prospect for an end to his antibusiness energy policy” until 2019, said Raymond James analysts.

Venezuela's 34% oil production decline since 1998 “is nearly the world's worst track record,” they said. “Petroleos de Venezuela SA’s production target of over 6 million b/d is comically unrealistic, in our view; it would take a policy shift of drastic proportions to turn around PDVSA, and under Chavez that seems unlikely. For the time being, Venezuela's declines are being more than offset by robust production growth in the US and some other geographies, but there will come a time when they become relevant for the global oil market once again.”

Raymond James analysts also cited a Wall Street Journal report gasoline and diesel prices remain driven by the higher price of North Sea Brent, the global benchmark crude, “despite the significant growth in US oil production.” They said, “This dynamic has driven enhanced margins for those refiners able to process cheaper crude (West Texas Intermediate) and sell product priced off of Brent, particularly Midcontinent refiners.”

Energy prices

The November contract for benchmark US light, sweet crudes slipped 21¢ to $91.86/bbl Oct. 12 on the New York Mercantile Exchange. The December contract dipped 22¢ to $92.28/bbl. On the US spot market, WTI at Cushing, Okla., was down 21¢ to $91.86/bbl.

Heating oil for November delivery declined 3.32¢ to $3.22/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 6.28¢ to $2.89/gal.

The November natural gas contract inched up 0.7¢ to $3.61/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 1.5¢ to $3.35/gal.

In London, the November IPE contract for North Sea Brent dropped $1.09 to $114.62/bbl. The new front-month November contract for gas oil fell $13.75 to $1,001/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes retreated 29¢ to $111.06/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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