MARKET WATCH: Energy prices fall in nervous markets

Energy prices continued falling Dec. 6 in nervous markets with front-month US benchmark crude down 2% in New York—the biggest decline this week—and Brent hit harder in London. Natural gas lost 1%, despite a bullish storage report.

“Oil markets lost ground as the European Central Bank cut its forecast for Euro-zone growth, once again raising the specter of weaker demand,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “With uncertainty of the fiscal cliff [threatened by Congressional deadlock in budget negotiations] and the possible deleterious effects on the US economy, oil market participants have been particularly sensitive of late to any news or data release that might suggest a deterioration in the global economy, with the associated negative implications for crude oil demand.”

Middle East tensions that propped oil markets—“especially Brent”—in November have faded for the moment. “Violence in Egypt has escalated, the Syrian civil war rages on, and Iran continues to test the resolve of the West with its nuclear program. Nevertheless, for now things are relatively quiet in the region, which has seen the Brent-West Texas Intermediate spread narrow to its lowest closing level since early August,” Ground said.

Because of growing price discrepancies between WTI and other crudes this year, however, the Energy Information Administration earlier this week replaced WTI with North Sea Brent in price forecasts in its latest annual energy outlook. The price of the benchmark US crude has fallen 13% this year because of increased production while increased Asian demand has buoyed Brent prices.

EIA also reported a 73 bcf draw from US underground storage in the week ended Nov. 30, exceeding analysts’ outlook for a 67 bcf withdrawal. That reduced working gas in storage to 3.804 tcf, down 33 bcf from the comparable period in 2011 but 168 bcf above the 5-year average (OGJ Online, Dec. 5, 2012).

“Overall, the storage withdrawal implies that the gas market is 2.9 bcfd tighter vs. last year on a weather-adjusted basis,” said analysts in the Houston office of Raymond James & Associates Inc. “The tightness in the market has continued to trend downward as coal-to-gas switching has reversed due to the rebound in gas prices. However, with prompt month prices down nearly 10% since Thanksgiving mostly due to uncooperative weather, prices need to remain low enough to incentivize further gas consumption.”

Meanwhile, they said, “With ethane prices in rejection territory, this is adding more gas to the system for those gas processors that have unhedged volumes. Next week's forecast is for another warm week, which will get us back into a surplus vs. last year; let's just hope that this warm weather doesn't follow the same trend as last year.”

Energy prices

The January and February contracts for benchmark US light, sweet crudes dropped $1.62 each to $86.26/bbl and $86.85/bbl, respectively, Dec. 6 on the New York Mercantile Exchange. On the US spot market, WTI at Cushing, Okla., continued in lockstep with the front futures contract, down $1.62 to $86.26/bbl.

Heating oil for January delivery decreased 4.75¢ to $2.94/gal on NYMEX. Reformulated stock for oxygenate blending for the same month was down 4.09¢ to $2.60/gal.

The January natural gas contract retreated 3.4¢ to $3.67/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., declined 2.2¢ to $3.38/MMbtu.

In London, the January IPE contract for Brent lost $1.78 to $107.03/bbl. Gas oil for December fell $14.50 to $913.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped $1.56 to $105.64/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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