Sam Fletcher
Senior Writer
HOUSTON, Oct. 1 -- Energy prices fell Sept. 28 in volatile trading in a New York market session that marked the end of the week, end of the month, and end of the quarter.
"Traders have been locking in gains lately as oil hit an all-time high late last month," said analysts Oct. 1 in the Houston office of Raymond James & Associates Inc. "Recent high prices have been attributed to tensions between the US and Iran and weakness in the US dollar."
The November contract for benchmark US light, sweet crudes climbed as high as $83.76/bbl in intraday trading as the US dollar sank to a record low against the euro for the seventh consecutive session. The crude contract closed at $81.66/bbl, down $1.22 for the day in subsequent profit taking on the New York Mercantile Exchange, but analysts credited the weak dollar—at its lowest level since 2004—with maintaining energy prices at a higher level than otherwise might be expected.
Meanwhile, said Raymond James analysts, "The global oil outlook looks as bullish as we have seen in many years. We are looking at meaningful oil inventory reductions, despite the following (very conservative) supply-demand assumptions. First, we believe the oil market will continue to overestimate non-OPEC's ability to grow production; this is a trend that will likely continue for the next decade. Second, since non-OPEC oil supply is not going to be able to meet the rising demand, the world is going to be increasingly dependent on the Organization of Petroleum Exporting Countries' ability to increase production. We are assuming that key OPEC producers ramp back up 2008 production to peaks seen in late 2005. Finally, limited oil supply growth forces us to model a slowdown in oil demand growth in both the US and Asia."
Raymond James is forecasting worldwide oil demand will grow only 1.5% vs. the Paris-based International Energy Agency estimates of 2.4% growth in 2008. "Even with lower demand growth assumptions and Saudi Arabia returning to late 2005 production highs, global oil inventories are likely to fall again in 2008. Ultimately, as worldwide inventories continue to fall and mature oil fields continue their production declines, we expect oil prices to maintain their bullish trajectory. Accordingly, we are increasing our 2008 oil price forecast from $70/bbl to $80/bbl and setting our initial 2009 forecast at $85/bbl," Raymond James analysts said.
In other news, tropical storm activity in the Atlantic has accelerated since mid-September, triggering recent production curtailments in the Gulf of Mexico. "In addition, more than one private weather forecasting firm is predicting that a La Nina weather pattern will form this winter, which would be the first in 7 years and could result in much colder-than-normal temperatures this winter beginning in December," said Robert S. Morris, Banc of America Securities LLC, New York.
Energy prices
The December crude contract dropped $1.03 to $80.48/bbl Sept. 28 on NYMEX. On the US spot market, West Texas Intermediate was down $1.22 to $81.67/bbl. The October contract for reformulated blend stock for oxygenate blending (RBOB) lost 2.56¢ to $2.07/gal on NYMEX. Heating oil for the same month declined 1.42¢ to $2.24/gal.
The November natural gas contract retreated 4.9¢ to $6.87/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 8¢ to $6.18/MMbtu. "Composite spot cash natural gas prices rose to nearly $6/MMbtu due partly to a rebound in Rockies prices, which are still below $2/MMbtu at many points, and also as the result of concerns surrounding potential storm activity along with warmer-than-normal temperatures projected for much of the country this week," Morris reported.
The Société Générale Group in Paris said, "Historically oil prices are usually eight times higher than natural gas. However, prices of crude oil and natural gas prices became progressively disconnected over the summer. With crude prices rising above $81/bbl and natural gas at $7/MMbcf, the long-term pricing ratio is history and the current ratio is closer to 12:1. We believe that fundamental news affecting oil will have little impact on gas at the current time."
In London, the November IPE contract for North Sea Brent crude dropped 86¢ to $79.17/bbl. However, the October gas oil contract gained $7 to $712.50/tonne.
The average price for OPEC's basket of 12 reference crudes increased $1.75 to $77.28/bbl on Sept. 28. So far this year, OPEC's basket price has averaged $63.74/bbl, compared with an average $61.08/bbl for all of 2006.
Contact Sam Fletcher at [email protected].
