MARKET WATCHCrude prices fall below $52/bbl

Jan. 12, 2007
Crude futures prices tumbled below $52/bbl Jan. 11 on the New York market to the lowest level since May 2005.

Sam Fletcher
Senior Writer

HOUSTON, Jan. 12 -- Crude futures prices tumbled below $52/bbl Jan. 11 on the New York market to the lowest level since May 2005.

Natural gas also gave up some of its recent gains after the US Energy Information Administration reported the withdrawal of 49 bcf of gas from US underground storage in the week ended Jan. 5. That was above the consensus of Wall Street analysts and compares with withdrawals of 47 bcf the previous week and 20 bcf a year ago. US storage is now slightly above 3 tcf of gas, up by 401 bcf from year-ago levels and 461 bcf above the 5-year average (OGJ Online, Jan. 11, 2007).

"A brief surge in cold weather this week and extended cold weather in the 6-10 day forecast should alleviate some of these storage concerns," said Ronald J. Barone, UBS Securities LLC analyst in New York.

Warm weather has been blamed for the drop in energy prices. The National Oceanic and Atmospheric Administration said 2006 was the warmest year on record for the Continental US, with the fourth warmest December ever. Above-normal temperatures were concentrated in the Northeast, and this past December was the warmest on record in Minnesota, New York, Connecticut, Vermont, and New Hampshire.

Nevertheless, analysts in the Houston office of Raymond James & Associates Inc. said, "The current sell-off is largely technically driven, and we remain bullish on the fundamentals."

They cite recent elements that "have been neglected by the oil market," including December figures that show the Organization of Petroleum Exporting Countries has further curtailed production by 245,000 b/d. "So far, OPEC has shaved 755,000 b/d from the international markets since the 1.2 million b/d cut was enacted in November. The cartel plans to curb production by yet another 500,000 b/d in February. We believe that 50% of the February cut will actually be implemented, bringing the total amount of oil production that OPEC may take off the market to 1 million b/d in the span of just 4 months," said Raymond James analysts.

Saudi Arabia already has told Asian customers they will receive 13% less crude from contracted volumes. "This marks the largest cuts in exports to Asia in the last 2 years. Kuwait has also signaled its intention to cut supplies by 42,000 b/d in February," said Raymond James analysts. "In the Middle East, tanker rates from the Arabian Gulf to Asia have plummeted to 3-year lows, further signaling that the cuts are having an effect on the market."

OPEC President Mohammed al-Hamli has said the group is concerned about the 13% drop in oil prices and will take further action if needed. But there is no push yet for an emergency meeting of OPEC ministers prior to their scheduled Mar. 15 session.

Analysts also cited a recent report that China's imports of crude increased 14.5% in 2006. "China's thirst for oil is expected to continue with projections of double-digit growth set for 2007," Raymond James reported. "Back in the US, the crude inventories overhang above 5-year highs has dissipated over the last 8 weeks, despite the lack of winter weather."

Energy prices
The February contract for benchmark US light, sweet crudes fell by $2.13 to $51.88/bbl Jan. 11 on the New York Mercantile Exchange. The March contract dropped $2.12 to $52.84/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down by $2.14 to $51.89/bbl. Heating oil for February delivery lost 4.51¢ to $1.48/gal on NYMEX. The February contract for reformulated blendstock for oxygenate blending (RBOB) declined by 3.87¢ to $1.39/gal.

The February natural gas contract dropped 46.3¢ to $6.29/MMbtu on NYMEX, On the US spot market, gas at Henry Hub, La., lost 27¢ to $6.15/MMbtu. "Natural gas suffered a big correction but that momentum is not fully broken yet," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

Falling crude prices helped bring down gas prices, said Raymond James analysts. "Gas prices have actually held up considerably well vis-à-vis crude prices, since the magnitude of the fall of crude would have dictated a larger fall in natural gas prices," they said.

In London, the February IPE contract for North Sea Brent crude dropped $1.99 to $51.70/bbl, while gas oil for January was unchanged at $484.50/tonne.

The average price for OPEC's basket of 11 benchmark crudes fell $1.43 to $49.13/bbl on Jan. 11.

Contact Sam Fletcher at [email protected].