MARKET WATCHOil futures prices flip-flop to 8-month high

Nov. 19, 2003
Oil futures prices jumped to an 8-month high Tuesday, as the New York and London markets flip-flopped for the second time in as many sessions with little, if any, change in the basic fundamentals of supply and demand.

Sam Fletcher
Senior Writer

HOUSTON, Nov. 19 -- Oil futures prices jumped to an 8-month high Tuesday, as the New York and London markets flip-flopped for the second time in as many sessions with little, if any, change in the basic fundamentals of supply and demand.

Energy futures prices rallied late last week but then fell Monday in a wave of profit taking that wiped out most gains from the previous session. On Tuesday, the same commodity contracts rebounded with gains that, in most cases, far exceeded Monday's losses.

The latest rally began as a technical recovery from Monday's downturn but escalated as improving prices attracted speculators and investment funds, analysts said.

Driven by gasoline
Gasoline was the market driver Tuesday, with the December contract shooting up by 4.57¢ to 91.57¢/gal in a "swift and steady rise" on the New York Mercantile Exchange that pulled other energy commodities along in its wake.

Some analysts attributed that price jump to recent reports of mechanical problems at several refineries, along with a general perception that US supplies of petroleum products—particularly reformulated gasoline—are low and vulnerable to disruption.

However, November markets normally are not sensitive to gasoline supplies or demand, and other analysts claimed there was no fundamental reason for such a steep price hike.

US product stocks fall
US inventories of gasoline dipped by 100,000 bbl to 192.2 million bbl during the week ended Nov. 14, the US Energy Information Administration reported early Wednesday. Those stocks are now down by 10.3 million bbl from the 5-year average for this time of year, officials said.

US distillate fuel stocks dropped by 2.3 million bbl to 128.9 million bbl last week, with "sizeable declines" in both heating oil and diesel fuel, EIA said. That put distillate stocks below the 5-year average by 4 million bbl.

Commercial US oil inventories increased by 2.9 million bbl to 294 million bbl during the latest week. However, EIA said only the West Coast registered "a significant increase," and total crude stocks were still 9.7 million bbl below the 5-year average.

US oil imports increased by 406,000 b/d to nearly 10.4 million b/d last week. "Imports were especially high on the West Coast," said EIA officials. Imports from Saudi Arabia apparently were "particularly high last week," they said.

Crude input into US refineries averaged 15.3 million b/d during the week ended Nov. 14, up by 153,000 b/d from the previous week. "Increases were seen in all regions except for the East Coast," EIA reported. "This may imply that refineries that were having problems are returning to higher operation levels."

Other energy prices
The December contract for benchmark US light, sweet crudes escalated by $1.55 to $33.28/bbl Tuesday, the highest price for a near-month contract since Mar. 17, just 3 days prior to the US-led invasion of Iraq. The January contract for benchmark oil climbed by $1.43 to $32.70/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased by $1.55 to $33.28/bbl, matching near-month activity on NYMEX.

Heating oil for December delivery jumped by 3.98¢ to 89.98¢/gal Tuesday, despite warmer weather this week in most of the US. The December natural gas contract regained only 10.1¢ to $4.87/Mcf Tuesday, after plunging by 34.8¢/Mcf Monday on NYMEX. Gas futures prices were "lifted by a surging crude oil market and some technical buying after an earlier [market] attempt to move lower stalled, despite a softer cash (spot gas) market," said analysts Wednesday at Enerfax Daily.

In London, the December contract for North Sea Brent oil surged by $1.42 to $30.47/bbl in late trading Tuesday on the International Petroleum Exchange, as that market followed NYMEX's lead. However, some brokers said they expect soon an equally sharp drop in oil futures prices in that market.

Gas oil for December delivery regained $3.25, the exact amount it lost Monday, to $266.75/tonne Tuesday. But the December natural gas contract recaptured only 1¢ to the equivalent of $5.30/Mcf on IPE, from its previous loss of 13.6¢/Mcf.

The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes was up by 31¢ to $29.21/bbl Tuesday.

Contact Sam Fletcher at [email protected]