Sam Fletcher
Senior Writer
HOUSTON, Oct. 28 -- Energy prices plunged lower Wednesday, wiping out gains from the previous day's surprise upward spike, as the market reacted to a larger-than-expected increase in US crude inventories during the week ended Oct. 22.
Traders shrugged off a drop in distillate fuel stocks—the sixth is as many weeks— down by 2.4 million bbl to 116.6 million bbl in that period. Instead, they focused on the crude increase of 4 million bbl to 283.4 million bbl (OGJ Online, Oct. 27, 2004).
Such sharp swings in energy prices over the two sessions prompted some analysts to conclude that high prices are unsustainable and subject to wide fluctuations without firm market fundamentals.
Meanwhile, President George W. Bush apparently plans to refuse a request by Purnomo Yusgiantoro, conference president of the Organization of Petroleum Exporting Countries, to release crude from the Strategic Petroleum Reserve to "cool down" energy prices. Administration spokesman Trent Duffy reiterated that Bush has previously said he would not use SPR to manipulate oil prices. Releasing crude from the emergency storage just days before the presidential election, said Duffy, might be viewed as "playing politics" with oil prices.
Pat Wood, chairman of the Federal Energy Regulatory Commission, recently said the commission is keeping close tabs on natural gas prices as the winter heating season gets underway to determine whether any manipulation is involved in the current price spikes. "You better believe we're looking at it. But if it's a legitimate supply and demand response, then that's the way it works," he told reporters.
Energy prices
The December contract for benchmark US sweet, light crudes plummeted by $2.71 to $52.46/bbl Wednesday on the New York Mercantile Exchange, while the January position lost $2.59 to $52.17/bbl. On the US spot market, West Texas Intermediate crude was down by $2.71 to $52.47/bbl. Gasoline for November delivery fell by 7.64¢ to $1.34/gal on NYMEX. Heating oil for the same month declined by 7.26¢ to $1.50/gal.
The expiring November natural gas contract plunged by 77.6¢ to $7.63/Mcf on NYMEX, "the largest drop since December, as storage inventories approach record levels," said analysts Thursday at Enerfax Daily. EIA reported Thursday that 26 bcf of natural gas was injected into US underground storage during the week ended Oct. 22. That was below Wall Street's consensus and down from 64 bcf the previous week and 55 bcf during the same period a year ago. However, US gas storage now exceeds 3.2 tcf, up by 128 bcf from a year ago and 210 bcf above the 5-year average for this time of year.
NYMEX natural gas futures "prices were highly vulnerable to a sell-off after they reached a series of 20-month highs in recent sessions, rallying 83% since the onset of [Gulf of Mexico] production outages from Hurricane Ivan on Sept. 11," analysts said. The amount of gulf natural gas production shut in because of hurricane damage decreased Wednesday "to 10.7% vs. 12.3% on Tuesday, marking one of the most substantial daily improvements since the days immediately following the storm," they said.
In London, the December contract for North Sea Brent crude fell by $2.11 to $49.45/bbl Wednesday on the International Petroleum Exchange.
The average price for OPEC's basket of seven benchmark crudes lost 73¢ to $44.75/bbl Wednesday.
Contact Sam Fletcher at [email protected]
