MARKET WATCH: Budget stalemate undercuts energy prices

Energy prices fell across the board Dec. 4 due to a political impasse in negotiation of an US federal budget with the clock ticking toward a yearend deadline to avoid automatic tax increases and spending reductions.

“The party-line battle over the budget seems to have turned into a stalemate,” said analysts in the Houston office of Raymond James & Associates Inc. “It was therefore another sloppy day for the markets, with the Standard & Poor’s Index dropping 0.2%. Despite the decline, the volatility index (VIX), the top indicator of market volatility, remained muted, suggesting that investors believe an agreement could be reached ahead of the Dec. 31 fiscal cliff deadline. Crude and natural gas also dropped on the session (down 0.7% and 1.4%, respectively), along with other global commodities.”

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, agreed, “Oil markets were under siege yesterday, despite rising Middle East tensions. Brent was the hardest hit….”

US inventories

The Energy Information Administration said Dec. 5 commercial US crude inventories dropped 2.4 million bbl to 371.8 million bbl in the week ended Nov. 30, wrecking Wall Street’s consensus for a 500,000 bbl decrease. Crude stocks remained well above average for this time of year, nevertheless. Gasoline inventories jumped 7.9 million bbl to 212.1 million bbl in the same period, outstripping the market’s prediction of a gain of 1.6 million bbl, with increases in both gasoline and blending components. Distillate fuel stocks climbed 3 million bbl to 115.1 million bbl but are still below average. Analysts expected a distillate increase of only 900,000 bbl.

Imports of crude into the US increased 112,000 b/d to 8.2 million b/d last week. In the 4 weeks through Nov. 30, crude imports averaged 8 million b/d, down 848,000 b/d from the comparable period a year ago. Gasoline imports last week averaged 513,000 b/d with distillate fuel imports averaging 155,000 b/d.

The input of crude into US refineries rose 255,000 b/d to 15.4 million b/d last week with units operating at 90.6% of capacity. Gasoline production increased to 9.2 million b/d. Distillate fuel production increased to 4.8 million b/d.

Energy prices

The January contract for benchmark US light, sweet crudes dropped 59¢ to $88.50/bbl Dec. 4, ending a three-session rally on the New York Mercantile Exchange. The February contract lost 61¢ to $89.08/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 59¢ to $88.50/bbl.

Heating oil for January delivery fell 5.22¢ to $3/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 3.75¢ to $2.69/gal.

The January natural gas contract declined 5.2¢ to $3.54/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., continued its retreat, down 6.9¢ to $3.37/MMbtu.

In London, the January IPE contract for North Sea Brent fell $1.08 to $109.84/bbl. Gas oil for December dropped $15.75 to $934/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down 78¢ to $107.66/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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