MARKET WATCH: Crude oil prices rebound as gas price falls

Natural gas prices dropped as oil rose sharply on Nov. 9, but crude ended the volatile week essentially flat in the New York market.

“The trading performance was very volatile, with markets starting the week on the back foot but coming back strongly towards [Nov. 9]. The rally in crude comes in the face of a US equity market [that] technically looks vulnerable,” said Walter de Wet at Standard New York Securities Inc., the Standard Bank Group.

“The futures market’s confidence remains weak as the market tries to ascertain the full impact of Hurricane Sandy on product and crude oil demand,” he reported. “Last week’s Department of Energy inventory data were the first numbers out that could offer some insight to this effect. There were surprising builds in gasoline and distillate stocks. This could be the first sign of the negative impact on oil markets that the shutdown of transportation and economic activity in general in the affected region most likely had.”

De Wet said, “While there might be countering factors, on balance we feel that the effect of the storm is negative for both product and crude oil demand, with the ultimate consequences perhaps only to be revealed in upcoming DOE data. This could exacerbate an already weak demand-side picture. Consequently, the potential for sustained upside in West Texas Intermediate in the short term appears limited.”

In Houston, analysts with Raymond James & Associates Inc. said, “With the election and earnings season finally behind us, expect investors to turn their attention back to macroeconomic conditions in the US and Europe.”

The Associated Press reported Greece's international creditors signed a memorandum of understanding to give that financially troubled country 2 more years to meet its ambitious debt reduction targets. Heads into its 6th year of recession, Greece asked for more time to implement reforms and budget cuts so that it can become self-sufficient. The memorandum does not specify how much additional assistance Greece will need and how it could be financed if European finance ministers this week agree to the extension.

IEA releases world outlook

Meanwhile, the foundations of the global energy system are shifting, with a resurgence in oil and gas production in some countries, a retreat from nuclear power in others, and signs of increasing policy focus on energy efficiency, the International Energy Agency in Paris said Nov. 12 in its latest World Energy Outlook. Because of extraordinary growth in oil and natural gas production, the US will become a net exporter of natural gas by 2020 and “almost self-sufficient in energy in net terms” by 2035, EIA predicted. “North America [will emerge] as a net oil exporter, accelerating the switch in direction of international oil trade, with almost 90% of Middle Eastern oil exports being drawn to Asia by 2035,” it said.

Already, Raymond James analysts noted, “The media has jumped on this [US exports] bandwagon, highlighting the many energy companies that have applied for permits to export crude…. This issue, similar in many ways to the domestic LNG export theme, is the most politically sensitive element of the path towards oil independence.” However, they said, “This is not an urgently pressing issue for the industry today, but things are moving in that direction, more quickly than you may think.”

IEA predicted, “Fossil fuels will remain dominant in the global energy mix, supported by subsidies that in 2011 jumped by almost 30% to $523 billion, due mainly to increases in the Middle East and North Africa.” It expects a surge in unconventional and deepwater oil production in this decade to boost supply from countries outside of the Organization of Petroleum Exporting Countries. But the world will rely increasingly on OPEC after 2020, it said. IEA expects Iraq to account for 45% of the growth in global oil production to 2035 and become the second-largest global oil exporter, overtaking Russia.

Energy prices

The December contract for benchmark US light, sweet crudes rebound 98¢ to $86.07/bbl Nov. 9 on the New York Mercantile Exchange. The January contract regained 99¢ to $86.55/bbl. On the US spot market, WTI at Cushing, Okla., was up 98¢ to $86.07/bbl.

Heating oil for December delivery climbed 5.01¢ to $3.01/gal on NYMEX. Reformulated stock for oxygenate blending for the same month escalated 9.19¢ to $2.70/gal.

However, the December natural gas contract dropped 10.5¢ to $3.50/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 12.5¢ to $3.32/MMbtu.

In London, the December IPE contract for North Sea Brent jumped by $2.15 to $109.40/bbl. Gas oil for November was up $10 to $930.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes rose 63¢ to $105.21/bbl. The average price of the OPEC basket so far this year is now down to $109.84/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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