Sam Fletcher
Senior Writer
HOUSTON, Nov. 17 -- The December contract for benchmark US light, sweet crudes plunged by $2.50 to $56.26/bbl Nov. 16, the lowest closing for a front-month oil contract since Nov. 18, 2005, on the New York Mercantile Exchange, after the Energy Information Administration reported the injection of 5 bcf of natural gas into US underground storage during the week ended Nov. 10.
It was the first increase in US winter gas supplies in 3 weeks, ending a 3-week rally on the natural gas futures market that had boosted the December gas contract to a $8.12/MMbtu closing Nov. 15 on NYMEX. That contract traded at $7.70-8.24/MMbtu on Nov. 16 before closing at $7.76/MMbtu. On the US spot market, however, natural gas at Henry Hub, La., gained 11¢ to $7.58/MMbtu.
"On the natural gas front, prices have held within a 98¢/Mcfe range during [most of] November (with a high of $8.26), after months of intense volatility. Frigid weather is the most likely catalyst needed for oil and gas prices to break out of their respective trading ranges," said analysts in the Houston office of Raymond James & Associates Inc. earlier this week.
The latest 5 bcf gas injection figure "consisted of a 4 bcf withdrawal in the East, a 4 bcf injection in the West, and a 5 bcf injection in the producing region," said Ronald J. Barone, UBS Securities LLC analyst in New York. "Two weeks into the heating season, temperatures are averaging 28% colder than last year and 6.7% warmer than normal," he said.
On Nov. 17, Raymond James said, "A spell of forecasts—mild weather, slowing economy, higher fuel inventories, etc.—prompted a wide sell-off as traders switched over to the January [crude] contract," with the December contract to expire at the end of trading Nov. 17.
"Might we see an end to the plunge? Perhaps, with inventories trending lower over the past 5 weeks and the Organization of Petroleum Exporting Countries possibly planning to cut production further (which we think is probable). Also, natural gas posted a higher-than-expected injection and fell nearly 5% yesterday. Our question is, 'Should the market throw in the towel on hasty assumptions of another warmer-than-normal winter?' Of course, we have put on our volatility hats for the remainder of the year, so buckle up—but keep a lookout for a rebound," said Raymond James analysts.
Meanwhile, OPEC warned in its latest monthly oil market report that, if it continues producing at current levels, there would be a bigger than usual build in oil inventories among consumer nations in the second quarter of 2007 (OGJ Online, Nov. 15, 2006).
Seasonal effects
Analysts at Enerfax Daily noted that temperatures were above average across most of the US during the week ended Nov. 10, reducing demand and allowing utilities to add gas to storage that already was near record highs. The Nov. 23 US Thanksgiving holiday is expected to cut demand even further with offices and businesses closed.
However, energy prices had rebounded Nov. 15 partially in anticipation of Thanksgiving holiday travel. "More people travel over the Thanksgiving holiday than any other holiday in the US. The American Automobile Association, the nation's largest motoring organization, expects 31.7 million travelers to hit the road. That number of motorists is about 83% of the total number of travelers expected over the Nov. 23-26 period," said Raymond James analysts.
Energy prices
The January benchmark crude futures contract dropped $2.15 to $58.57/bbl Nov. 26 on NYMEX. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $2.49 to $56.28/bbl. Unleaded gasoline for December delivery fell 5.25¢ to $1.53/gal on NYMEX. Heating oil for the same month lost 3.19¢ to $1.66/gal.
In London, the January IPE contract for North Sea Brent crude fell by $2.07 to $58.54/bbl. However, gas oil for December escalated by $7 to $541/tonne
The average price for OPEC's basket of 11 benchmark crudes increased by 14¢, the same amount as the previous session, to $55.47/bbl on Nov. 16.
Contact Sam Fletcher at [email protected].
