Sam Fletcher
Senior Writer
HOUSTON, Nov. 3 -- The front-month crude futures price hit a 2-week low Nov. 2 on the New York market amid uncertainties about production cuts by the Organization of Petroleum Exporting Countries, but natural gas futures prices continued to climb.
"Even though we've seen relatively bullish crude inventories since mid-October, [the price of] oil has steadily fallen approximately 4% just this week, taking many energy [company] stocks with it," said analysts in the Houston office of Raymond James & Associates Inc. "The market may have instead adopted a somewhat placated outlook on geopolitical affairs (for example, two facilities attacked in Nigeria were restarted). We still think this downward trend is puzzling, especially in light of the fact that the Louisiana Offshore Oil Port setbacks were not the cause of the very bullish withdrawal [from US crude inventories] 2 weeks ago."
The primary reason for the recent downturn in crude prices is "growing macroeconomic pessimism and pessimism about the US economy in particular," said analysts at Barclays Capital Inc., London. "It also implies that the chances of OPEC having to overtighten the short-term market are becoming greater."
Natural gas
The US Energy Information Administration reported the withdrawal of 9 bcf of natural gas from US underground storage in the week ended Oct. 27, compared with injections of 19 bcf the previous week and 27 bcf during the same period last year. US gas storage now stands at 3.45 tcf, up 288 bcf from a year ago and 276 bcf above the 5-year average (OGJ Online, Nov. 2, 2006).
Withdrawals of gas from US storage during October "are quite rare," Barclay analysts said. "For the next 2 weeks at least, the tendency is to show injections of some sort."
Meanwhile, Ronald J. Barone, managing director of UBS Securities LLC, New York, said: "Shortages of natural gas feedstock in the global market are significantly constraining both the operation of existing liquefaction plants and the development of new LNG projects. Several large exporting terminals around the world are sitting idle due to the lack of available natural gas supply. Some of the impacted gas-exporting counties include major international players such as Oman, Malaysia, Indonesia, Trinidad, and Nigeria.
"Oman LNG, for example, has 1 million tons/year of spare capacity due to feedstock shortages. With most of the existing production already committed under long- or medium-term contracts, the shortage of feedstock to feed the available spare capacity is having a greater effect on an already constrained spot market. Consequently, importing counties, such as the US, are experiencing a steady decline of LNG shipments. (The US decline is largely due to upstream difficulties in Trinidad, the country's largest exporting partner, specifically at Trinidad's Atlantic LNG Train 4.)," Barone said.
Based on the latest weather outlook, Barone expects nationwide heating demand to average 15% below normal for the week ending Nov. 9 and near normal for the week ending Nov. 16.
Energy prices
The December contract for benchmark light, sweet crudes dropped 83¢ to $57.88/bbl Nov. 2 on the New York Mercantile Exchange. The January contract fell 93¢ to $59.62/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 83¢ to $57.89/bbl. Heating oil for December delivery lost 1.18¢ to $1.64/gal on NYMEX. Unleaded gasoline for the same month slipped by 0.99¢ to $1.45/gal.
The December natural gas contract rose for the third consecutive session, up 10.2¢ to $7.81/MMbtu on NYMEX. On the spot market, natural gas at Henry Hub, La., jumped by 19.5¢ to $7.28/MMbtu.
In London, the December IPE contract for North Sea Brent crude lost $1.11 to $57.87/bbl. Gas oil for November gained $2 to $515.75/tonne.
The average price for OPEC's basket of 11 benchmark crudes was unchanged at $54.25/bbl on Nov. 2.
Contact Sam Fletcher at [email protected].
