International futures prices plummeted Wednesday with reports of increased US crude inventories and expectations of a slowdown in the US economy.
The American Petroleum Institute�s report late Tuesday that US crude inventories increased last week by nearly 2.5 million bbl was interpreted as the first tangible result of earlier production increases by members of the Organization of Petroleum Exporting Countries, said analysts.
That realization apparently has radically altered market perceptions of supply and demand fundamentals, they said.
Oil prices remained high through OPEC�s earlier production hikes because traders persisted in the belief there would be insufficient supply to meet demand this winter. Analysts said the latest API report seems to have shattered that perception, triggering aggressive short selling.
The February contract for benchmark US light, sweet crudes plunged $2.31 Wednesday to $25.65/bbl on the New York Mercantile Exchange.
Home heating oil for January delivery dropped 5.94� to 85.66�/gal, while the January contract for unleaded gasoline was down 4.4� to 72.64�/gal.
Natural gas for the same month gained 22.4� to $9.326/Mcf on the NYMEX.
Although oil stocks increased last week, the American Gas Association reported US underground natural gas storage withdrawals of 158 bcf during the same period. That compares to withdrawals of 116 bcf during the same period a year ago and 85 bcf in 1998.
Natural gas storage levels now total 630 bcf, 23% lower than a year ago and at record low levels at this point in the season. Meanwhile, unseasonably cold weather continues across the central and eastern US, with no warming trend expected through yearend, officials said.
North Sea Brent crude futures continued to take a pounding on the International Petroleum Exchange in the wake of NYMEX�s bearish performance. The February contract for Brent crude plummeted $2.03 to $22.97/bbl Wednesday on the IPE.
Such a rapid drop suggests that some who sold short would have to cover those positions. That may spark some recovery before the market stabilizes, analysts said.
However, they said it�s unlikely prices will hit $25/bbl again in the London market over the remainder of this year, even if key US markets suffer severe weather.
On the IPE, the January natural gas contract gained 6� to the equivalent of $4.12/Mcf.
On the Singapore exchange, the February contract for North Sea Brent crude lost $2.03 to settle at $22.97/bbl. The March position lost $2.22 to settle at $22.92/bbl.
The average price for OPEC�s basket of seven crudes lost $1.61 to $22.26/bbl on Wednesday.
