MARKET WATCH: Economic worries continue to undercut oil prices

Oil prices continued falling Nov. 28, with front-month crude down 0.8% on demand concerns, its third decline in as many sessions on the New York market, despite upbeat statements by US House Speaker John Boehner and President Barack Obama of a possible budget agreement in the near future.

“Of course, the devil is always in the details,” said analysts in the Houston office of Raymond James & Associates Inc. “Natural gas fell 2.3% as the market braced for warmer weather.”

Nevertheless, oil prices were up in early trading Nov. 29 with Sec. of the Treasury Timothy Geithner slated to meet with congressional leaders. Other economic indicators were mixed, however.

The US Department of Commerce revised third-quarter gross domestic product growth to 2.7%, up from the 2% first reported and more than the 1.3% rate of the second quarter, as restocking by businesses offset weaker growth of domestic spending. However, economic growth is expected to decline in the fourth quarter due to Hurricane Sandy’s disruption of business and reduced spending by consumers and businesses until the administration and Congress move to avoid the “fiscal cliff” of automatic tax increases and spending cuts at yearend.

Separately, the International Council of Shopping Centers said 18 major retailers reported November sales were up only 1.7%, well below the expected increase of at least 4.5%, in a slow start of holiday shopping largely because of Hurricane Sandy.

On the other hand, the National Association of Realtors said its seasonally adjusted index of pending home sales escalated 5.2% to 104.8 in October—the highest in 6 years—because of increased employment and lower mortgage rates.

“However, it will be developments or perceived developments on the fiscal cliff negotiations that will most likely move markets the most,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

US inventories

The Energy Information Administration reported the injection of 4 bcf of natural gas in US underground storage in the week ended Nov. 23, while the Wall Street Consensus was for the withdrawal of 6 bcf. That increased working gas in storage to 3.877 tcf, up 26 bcf from the comparable period in 2011 and 190 bcf above the 5-year average.

In another surprise announcement, EIA earlier said commercial US crude inventories decreased 300,000 bbl to 374.1 million bbl in that same week. Wall Street’s consensus was for a 400,000 bbl increase. Gasoline stocks climbed 3.9 million bbl to 204.3 million bbl, the largest weekly increase since July and far exceeding analysts’ expectations of a 900,000 bbl gain. Both finished gasoline and blending components rose. Distillate fuel inventories declined 800,000 bbl to a multiyear low of 112 million bbl for this time of year, while the market expected a 500,000 bbl build (OGJ Online, Nov. 28, 2012).

The “Big Three” oil stocks—crude, gasoline, and distillate fuel—increased a total 2.7 million bbl largely because of the surprise jump in gasoline. Total petroleum inventories increased only 1.1 million bbl, however—“much less than the ‘Big Three’ due to declines in jet fuels, residual fuel oil, and unfinished oils,” said Raymond James analysts.

With US refinery utilization now up to 88.6%, disruptions from Hurricane Sandy are “now firmly in the rearview mirror,” they said. Total days of supply increased to 44.8 million bbl and are 2.3 days below year-ago levels. Crude inventories at Cushing, Okla., continued climbing to 45.9 million bbl, an increase of 14.6 million bbl from year-ago levels.

Energy prices

The January contract for benchmark US sweet, light crudes dropped 69¢ to $86.49/bbl Nov. 28 on the New York Mercantile Exchange. The February contract lost 68¢ to $87.13/bbl. On the US spot market, West Texas Intermediate at Cushing was down 69¢ to $86.49/bbl.

Heating oil for December delivery dipped 0.14¢ but closed essentially unchanged at a rounded $3.01/ gal on NYMEX. Reformulated stock for oxygenate blending for the same month inched up 0.18¢ but closed at a rounded $2.73/gal for the third consecutive day.

The December natural gas contract dropped 7.3¢ to $3.70/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 8.1¢ to $3.68/MMbtu.

In London, the January IPE contract for North Sea Brent declined 36¢ to $109.51/bbl. Gas oil for December was down $8.25 to $932/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes decreased $1.08 to $106.99/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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