By OGJ editors
HOUSTON, Nov. 25 -- Futures prices for oil and petroleum products plummeted Monday as Geneva-based Petrologistics estimated that members of the Organization of Petroleum Exporting Countries exceeded their new oil production quotas by a total of 1 million bbl in November.
OPEC members earlier agreed to reduce production by 900,000 b/d to a total 24.5 million b/d effective Nov. 1. There has been speculation that OPEC ministers might contemplate an additional production cut at their next meeting scheduled Dec. 4 in Vienna.
Market positioned for fall
Meanwhile, the previous runup in benchmark US crude prices on the New York Mercantile Exchange in recent weeks was "tied to massive buying pressure from large non-commercial traders (also known as hedge funds) who built up a net long open interest exposure that has, in fact, now exceeded the levels seen when crude prices trekked towards $40[/bbl] prior to Gulf War II," said Michael Rothman and Steven A. Pfeifer, first vice-presidents at Merrill Lynch Global Securities Research & Economics Group, New York.
They reported early Monday, "The funds built a net long [open purchases position] in crude futures and options during the most recent reporting week totaling almost 92 million bbl, which is just shy of the 94 million bbl all-time record high." They also said, "Large commercial [traders, primarily oil companies] used the rally as an opportunity to build a huge short-hedge position, which for the most recent week came in a wee shy of the 90 million bbl mark. The selling activity by commercials hasn't been this intense since the pre-war price spike back in February."
The earlier "buying spree" among non-commercial traders pushed up prices "to politically unpalatable levels" and made the oil futures market "highly vulnerable to a very bearish 'paper flow' event, meaning a sharp-down move as funds were forced to liquidate long positions," they said. The report of OPEC cheating apparently provided such a trigger.
Based on electronic trading overnight on NYMEX and earlier trade of North Sea Brent crude futures on the International Petroleum Exchange in London, Rothman and Pfeifer concluded that a sell-down would start when NYMEX opened Monday "in what will be an unusually short trading week tied to the US Thanksgiving holiday."
Energy prices
The January contract for benchmark US sweet, light crudes fell by $1.87 to $29.74/bbl Monday on NYMEX, while the February position was down by $1.72 to $29.49/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., plunged by $2.15/bbl to $29.93/bbl Monday.
Heating oil for December delivery sank by 4.83¢ 82.03¢/gal on NYMEX. Unleaded gasoline for the same month lost 4.38¢ to 83.3¢/gal. However, the December natural gas contract inched up by 4.8¢ to $4.68/Mcf Monday on NYMEX, "lifted by short covering [buying to cover open sales positions] ahead of its expiration today and a firm cash market in the face of some cold Midwest weather early this week," said analysts Tuesday at Enerfax Daily. "There was some technical buying, too," they said.
Analysts noted that cooler weather in the Midwest and Northeast US is expected to increase demand for natural gas during the "holiday-shortened week, which typically means lower industrial loads."
In London, the January contract for North Sea Brent oil lost $1.50 to $27.86/bbl on IPE. Gas oil for December delivery declined by $10.25 to $252.25/tonne. However, the December natural gas contract jumped by 13.3¢ to the equivalent of $5.45/Mcf Monday on IPE.
Information on the average price Monday of OPEC's basket of seven benchmark crudes was not available Tuesday from that group's news agency in Vienna.
