Sam Fletcher
Senior Writer
HOUSTON, Oct. 31 -- Crude prices tumbled Oct. 30, ending a five-session climb to record highs, after Goldman Sachs Group Inc., New York, advised investors to close their long positions in the futures market and take profits from the recent rally.
The result was "the largest correction of the year" in futures market prices for crude, outweighing earlier reports of recent production increases from the Organization of Petroleum Exporting Countries, said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "Nowadays the price of oil is set not by a few countries in the Middle East, but by a few banks on Wall Street," he said.
For crude futures to reach the $100/bbl price level that some were predicting, the market first would have to overcome the psychologically important barrier of $95/bbl. Instead, Jakob predicted, "The Goldman report will very surely push some market participants to turn from buying the dips to selling the rallies."
The investment banking group said it still expects relatively high and volatile oil market prices over the "longer term." However, Goldman Sachs analysts expect crude prices to retreat to $80/bbl by April.
The commodity market also was undercut by earlier reports that Mexico is close to resuming offshore oil production that was shut in by storms last week (OGJ Online, Oct. 30, 2007). On the other hand, Recep Tayyip Erdogan, prime minister of Turkey, warned of increased military action against separatist Kurdish rebels as Turkish helicopters for a second day fired rockets at rebel positions near the two countries' border. Turkey wants US officials to crack down on Kurdish guerrillas in northern Iraq.
Meanwhile, the Federal Reserve is expected to cut further the overnight lending rate when the Federal Open Market Committee meets Oct. 31 to evaluate the economic situation. "Another interest rate cut would likely boost oil prices (to the degree that it has not already been priced in)," said analysts in the Houston office of Raymond James & Associates Inc.
US inventories
The Oct. 30 market also was influenced by Wall Street analysts' expectations of a small increase in US crude inventories and a small decline in gasoline stocks.
Instead, the Energy Information Administration said Oct. 31 that commercial US crude inventories dropped 3.9 million bbl to 312.7 million bbl in the week ended Oct. 26. Gasoline inventories increased by 1.3 million bbl to 195.1 million bbl during the same period, while distillate fuel stocks were up 800,000 bbl to 135.3 million bbl. Propane and propylene inventories increased 900,000 bbl to 61.9 million bbl that week.
Imports of crude into the US fell by 278,000 b/d to 9.4 million b/d that same week. The input of crude into US refineries dipped by 13,000 b/d to 14.9 million b/d in that period, with refineries operating at 86.2% of capacity. Gasoline production fell to 8.9 million b/d while distillate fuel production rose to 4.1 million b/d.
Energy prices
The December contract for benchmark US light, sweet crude dropped $3.15 to $90.38/bbl Oct. 30 on the New York Mercantile Exchange. The January contract lost $3.04 to $89.59/bbl. On the US spot market, West Texas Intermediate was down $3.14 to $90.39/bbl. The November contract for reformulated blend stock for oxygenate blending (RBOB) fell 7.03¢ to $2.26/gal on NYMEX. Heating oil for the same month declined 4¢ to $2.42/gal.
The new front-month December natural gas contract gained 4.7¢ to $8.02/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., shot up 30¢ to $7.02/MMbtu. "A pipeline explosion (terrorists?) in Mexico and a cold weather forecast for the Midwest and Northeast bolstered natural gas," said Raymond James analysts. The changeover to the December contract "pushed natural gas to approximately 5-month highs, and we expect further increases to roughly $9/Mcf by the end of November," they said.
In London, the December IPE contract for North Sea Brent crude lost $2.88 to $87.44/bbl. The November gas oil contract dropped $1 to $769.25/tonne.
The average price for OPEC's basket of 12 reference crudes declined 34¢ to $85.50/bbl on Oct. 30.
Contact Sam Fletcher at [email protected].
