Sam Fletcher
Senior Writer
HOUSTON, Oct. 19 -- For the first time ever, the near-month contract for benchmark crude passed $90/bbl in after-hours electronic trading Oct. 18 in New York.
"Helping drive crude to unprecedented prices are tensions along the Turkish-Iraqi border and the weakening US dollar," said analysts in the Houston office of Raymond James & Associates Inc. "The dollar continues to trade close to record lows against the euro."
However, Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, pointed out crude prices were "racing upwards this week even when the dollar was rising." The recent spike in crude prices "has little to do with market fundamentals, but is rather due to market dysfunction linked to the substantial growth of option trading and option hedging dynamics," Jakob said.
Since the November crude contract expires Oct. 22 on the New York Mercantile Exchange, he said, "We would expect for most positions to be cleared before the weekend. Hence, given the short covering potential linked to the upcoming November futures expiry, we have to consider as probable the risk that the December futures contract touches $90/bbl today and the upside potential that this would bring through the option hedging kicker," Jakob said Oct. 19. The option hedging dynamics are focused primarily on benchmark US crudes. Because petroleum products or North Sea Brent crude contracts do not benefit from the same option dynamics, the spread between benchmark US crudes and petroleum products continue to widen, Jakob said.
Meanwhile, he said, "The rise [of benchmark US crude prices] is so technical that it should be taken as an opportunity for the producers to sell (hedging) at these levels. However, we find that there is such an upside risk in the $90/bbl December call kicker that we would be hesitant to sell in front of that level."
At Barclays Capital Inc. in London, analyst Kevin Norrish said, "With little fresh fundamentals news having been released, yesterday's strong gains appear to be attributable to the current market desire of exploring the upside, and in this context the possibility of further gains remain intact in our view. By contrast, we believe that any sizeable and sustained pullback in prices would require a relaxation of the extremely tight fundamentals situation and, more specifically, some strong action on the part of OPEC producers. Meanwhile, gains in refined product prices have continued to lag those in crude, with both heating oil cracks and gasoline cracks remaining under pressure."
Energy prices
The November contract for benchmark US light, sweet crudes rebounded as high as $89.78/bbl before closing at $89.47/bbl, up $2.07 for the day during the regular trading session Oct. 18 on NYMEX. However, that contract climbed to $90.07/bbl in overnight electronic trading. The December crude contract gained $1.85 to $88.04/bbl. On the US spot market, West Texas Intermediate was up $2.07 to $89.48/bbl. The November contract for reformulated blend stock for oxygenate blending (RBOB) escalated by 3.85¢ to $2.19/gal on NYMEX. Heating oil for the same month increased 3.04¢ to $2.35/gal.
The November natural gas contract dropped 8.4¢ to $7.37/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., climbed 8.5¢ to $7.20/MMbtu.
In London, the December IPE contract for North Sea Brent crude increased by $1.47 to $84.60/MMbtu. The November gas oil contract advanced by $3.50 to $731.50/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes inched up 5¢ to $81.14/bbl on Oct.18.
Contact Sam Fletcher at [email protected]
