Sam Fletcher
Senior Writer
HOUSTON, Nov. 10 -- Energy prices plummeted Tuesday, with the near-month futures price dropping below $48/bbl on the New York Mercantile Exchange for the first time since late September as speculators—particularly the well-financed hedge funds—continued to exit the oil commodities markets.
Analysts noted no basic change in market fundamentals that ordinarily might trigger a large drop in crude prices. If anything, a pending general strike in Nigeria scheduled for Nov. 16 normally would be expected to contribute to a bullish market outlook. Moreover, this winter generally is expected to be colder than last year, and US heating oil inventories are well below normal levels for this time of year.
Distillate supplies fall
US distillate stocks fell for the eighth consecutive week, down by 100,000 bbl to 115.6 million bbl during the period ended Nov. 5, the US Energy Information Administration reported Wednesday. US gasoline inventories also fell by 400,000 bbl to 201.3 million bbl in the same week, but commercial US crude stocks increased by 1.8 million bbl to 291.5 million bbl, near the middle of the average range for this time of year.
On Wednesday, the International Energy Agency in Paris said the world supply of crude increased by 890,000 b/d to 84.6 million b/d in October. Crude supply from the Organization of Petroleum Exporting Countries increased by 215,000 b/d to 30 million b/d in October, "near to sustainable capacity," said IEA. "Saudi Arabia held supply above 9.5 million b/d, and high OPEC output will likely continue in November. Iraqi output averaged close to September's 2.2 million b/d. Concerns persist about supply risks in Iraq and Nigeria, but OPEC production exceeds the [fourth quarter] 'call' by a wide margin."
Non-OPEC production increased by 685,000 b/d in October, with the end of North Sea maintenance programs, recovery in the Gulf of Mexico from production damage inflicted by Hurricane Ivan in mid-September, and increased production from the former Soviet countries, IEA said. IEA's forecasts for world demand for crude were roughly unchanged at 82.4 million b/d for 2004, rising to 83.8 million b/d in 2005.
'No room for error'
However, analysts in the Houston office of Raymond James & Associates Inc., St. Petersburg, Fla., said Wednesday, "Overall, there remains no room for error within the oil markets, as lofty demand expectations and near-capacity supply should continue to drive an extremely tight equation."
They noted that IEA foresees crude inventories building through the fourth quarter of this year, a period when seasonal draws on supplies are usually typical. "With Saudi Arabia helping supply over 9.5 million b/d and only having near 1 million b/d of effective additional capacity, we continue to believe that further supply increases will be difficult at best," analysts said.
Energy prices
The December contract for benchmark light, sweet crudes plunged by $1.72 to $47.37/bbl Tuesday on NYMEX, down from a mid-October peak of $55.67/bbl for the front-month crude position. Analysts said that steep price decline is a reverse image of the sharp spike that occurred earlier when speculators focused their attention on the energy futures market. The January crude contract lost $1.60 to $47.57/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $1.71 to $47.38/bbl.
Gasoline for December delivery dropped 4.14¢ to $1.23/gal Tuesday on NYMEX. Heating oil for the same month fell 2.44¢ to $1.34/gal. The December natural gas contract lost 12.9¢ to $7.47/Mcf, with "record storage inventories and a discounted cash [spot] market," said analysts Wednesday at Enerfax Daily.
Early Wednesday, EIA reported ahead of the US Veteran's Day holiday "a 'true' physical injection" of 41 bcf of natural gas into US underground storage in the week ended Nov. 5. That included a reclassification of 7 bcf of "working gas" into the "base gas" category, said analysts at Banc of America Securities LLC, New York. It compares with injections of 44 bcf the previous week and 32 bcf during the same period a year ago. US gas storage now stands at a record 3.3 tcf.
In London, the December contract for North Sea Brent crude plunged by $2.21 to $43.71/bbl on the International Petroleum Exchange.
The average price for OPEC's basket of seven benchmark crudes lost 64¢ to $38.03/bbl Tuesday.
Contact Sam Fletcher at [email protected]
