MARKET WATCH: Oil prices rise in volatile markets

Oil prices fluctuated through “a rollercoaster ride” Dec. 12 before posting gains at closing as benchmark crudes registered “the best performance in weeks” in London and New York markets, with North Sea Brent faring better than West Texas Intermediate.

Prices trended up in anticipation of an expanded quantitative easing program announced by Federal Reserve Bank officials later in the day and despite a bearish government report of a bigger-than-expected build in US oil inventories during the past week. “The market was unsettled by the strong builds for a second consecutive week in gasoline and distillate stocks,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group.

“While the Fed did announce that the expiring Operation Twist would be replaced by outright bond purchases of $45 billion/month, this had been largely anticipated, leaving markets nothing new to sustain their upward trajectory,” Ground reported. “With the announcement out of the way, considerations turned once again to the fiscal cliff, which saw markets drop and continues to lend prices a downward bias this morning.”

As expected, the brief Nov. 12 meeting of ministers of the Organization of Petroleum Exporting Countries in Vienna produced no surprises and no changes to production quotas (OGJ Online, Dec. 12, 2012). “Oil traders were encouraged by OPEC, which reported production from the 12 member countries has slid to an 11-month low of 30.8 million b/d,” said analysts in the Houston office of Raymond James & Associates Inc. “That's lowball compared with other estimates, though even if accurate, it's still above the official quota (not that anybody cares about quotas these days, least of all OPEC members themselves).”

Reports on US economic indicators Dec. 13 were of the half-full-half-empty sort, depending on one’s outlook. The US Department of Labor said new applications for unemployment benefits last week fell for a fourth consecutive time, down 29,000 to a seasonally adjusted 343,000—the lowest total applications in 2 months and the second lowest for this year. Yet there were 5.6 million US residents receiving unemployment benefits in the week ended Nov. 24, the latest period for which data are available, an increase of 700,000 from the previous week.

New applications for unemployment benefits spiked 5 weeks ago in the wake of Hurricane Sandy, but the storm had little effect on November hiring with 146,000 new jobs reported last month compared with an average monthly gain of 150,000 this year. US unemployment fell to a 4-year low of 7.7% from 7.9% in October, primarily because more unemployed workers have exhausted their benefits and given up looking for jobs. December hiring will include part-time and short-term jobs related to the holiday season, but analysts expect some companies will curtail hiring in the face of deadlocked negotiations on the federal budget and the “fiscal cliff” threat at the start of the new year.

Meanwhile, the US Department of Commerce reported US retail sales increased 0.3% in November, the biggest gain in 13 months and offsetting a 0.3% decline in October. However, increased retail sales in November were largely the result of Hurricane Sandy, with auto sales up 1.5% to replace damaged vehicles and home improvement store sales up 1.6% as storm victims rebuild.

The start of holiday shopping added to November’s increased spending with online shopping jumping 3%, the biggest increase in 13 months. Department store sales fell, however, even at the “big box” chain outlets.

US inventories

The Energy Information Administration reported the injection of 2 bcf of natural gas into US underground storage in the week ended Dec. 7, less than Wall Street’s consensus for a 3 bcf addition. That raised working gas in storage to 3.806 tcf, which is 48 bcf more than in the comparable period in 2011 and 283 bcf above the 5-year average.

EIA earlier reported commercial US crude inventories increased by 800,000 bbl to 372.6 million bbl in the same week, a total well above average for the time of year. Gasoline stocks jumped 5 million bbl to 217.1 million bbl, with increases in both finished gasoline and blending components. Distillate fuel inventories escalated 3 million bbl to 118.1 million bbl, still well below average (OGJ Online, Dec. 12, 2012).

Raymond James analysts said the oil inventory update was bearish with a larger-than-expected build in gasoline and distillate stocks compounded by an unexpected build in crude. The "Big Three" inventories—crude, gasoline, and distillate fuel—had a total increase of 8.8 million bbl, driven by the surge in gasoline stocks again.

Energy prices

The January contract for benchmark US sweet, light crudes rose 98¢ to $86.77/bbl Dec. 13 on the New York Mercantile Exchange. The February contract climbed 99¢ to $87.31/bbl. On the US spot market, WTI at Cushing, Okla., accompanied the front-month futures contract, up 98¢ to $86.77/bbl.

Heating oil for January delivery bumped up 3.98¢ to $2.97/gal on NYMEX. Reformulated stock for oxygenate blending for the same month increased 3.6¢ to $2.65/gal.

The January natural gas contract continued its decline, down 3¢ to $3.38/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 4.4¢ to $3.33/MMbtu.

In London, the January IPE contract for Brent was up $1.49 to $109.50/bbl. Gas oil for December was unchanged at $903.50/tonne, while the January contract escalated $15.50 to $923/tonne.

The average price for OPEC’s basket of 12 benchmark crudes increased $1.03 to $105.83/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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