MARKET WATCH: Oil prices decline as joy over budget agreement wanes

Oil prices slumped and natural gas continued its fall Jan. 3 as euphoria over the US budget agreement faded.

“Positive sentiment helped keep oil markets buoyant in the early part of the day. West Texas Intermediate achieved an intraday high of around $93.20/bbl, while Brent was just off $112.40/bbl,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “However, this all changed after the release of the Federal Open Market Committee’s minutes [of its Dec. 11-12 meeting], which seriously dented the market’s confidence in continued monetary easing [by the US Federal Reserve System].”

Prices for both West Texas Intermediate and North Sea Brent immediately dropped, then climbed a little higher but still finished in the red. These losses were extended when Asian markets opened. “Brent moved as low as $111.30/bbl during Asian trading hours,” said Ground. “Trade has been relatively more volatile this morning, although movements are anchored around $111.40/bbl.”

On the other hand, he said, “The drop in crude oil prices was not to the extent of precious metals, which could be owing to increased optimism over the strength of the US economy. While the FOMC did not really reveal any change in their economic outlook (the recovery remains challenging), perhaps participants reason that the discussions around ending quantitative easing imply that the economy must be looking better. We feel that this is premature.”

US inventories

The Energy Information Administration said Jan. 4 commercial US inventories of crude fell 11.1 million bbl to 359.9 million bbl in the week ended Dec. 28, the last full week reported for 2012. The Wall Street consensus was for a much smaller decrease of 1 million bbl. US crude stocks remain well above average, however. Gasoline inventories increased 2.6 million bbl to 225.7 million bbl that same week, exceeding the market’s outlook for a gain of 2.2 million bbl. Finished gasoline stocks decreased while blending components increased. Distillate fuel inventories jumped 4.6 million bbl to 124 million bbl, outstripping the 1.3 million bbl gain analysts expected.

Imports of crude were down 931,000 b/d to 7.1 million b/d last week. In the 4 weeks through Dec. 28, crude imports averaged 8 million b/d, down 475,000 b/d from the comparable period in 2011. Gasoline imports last week averaged 487,000 b/d while distillate fuel imports averaged 108,000 b/d.

The input of oil into US refineries inched up 13,000 b/d to 15.3 million b/d last week, with units operating at 90.4% of capacity. However, gasoline production decreased to 8.9 million b/d, and distillate fuel production declined to 4.9 million b/d.

EIA also reported the withdrawal of 135 bcf of natural gas from US underground storage, surpassing Wall Street’s consensus for 130 bcf. That left 3.517 tcf of working gas in storage at the end of the year, up 23 bcf from the comparable period a year ago and 389 bcf above the 5-year average. Publication of EIA’s weekly reports was delayed because of the New Year holiday.

Energy prices

The February contract for benchmark US light, sweet crudes declined 20¢ to $92.92/bbl Jan. 3 on the New York Mercantile Exchange. The March contract decreased 21¢ to $93.34/bbl. On the US spot market, WTI at Cushing, Okla., followed the front-month futures contract down 20¢ to $92.92/bbl.

Heating oil for February delivery lost 2.12¢ to $3.03/gal on NYMEX. Reformulated stock for oxygenate blending for the same month inched up 0.26¢ but closed essentially unchanged at a rounded $2.80/gal.

The February natural gas contract continued falling, down 3.5¢ to $3.20/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 8.6¢ to $3.19/MMbtu.

In London, the February IPE contract for North Sea Brent gave back 33¢ to $112.14/bbl. Gas oil for January was down $6.75 to $935.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 19¢ to $109.15/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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