Sam Fletcher
Senior Writer
HOUSTON, Jan. 18 -- The front-month crude price fell Jan. 17 to its lowest closing in 5 weeks after Federal Reserve Chairman Ben Bernanke told the US House Budget Committee downside risks to US economic growth in 2008 are now "more pronounced."
Bernanke said he is "not forecasting a recession," however. Meanwhile, a US government report showed new home construction has slowed to its lowest pace in 6 years.
"It was a sea of red on Wall Street as the market took a hit for the third straight day," said analysts in the Houston office of Raymond James & Associates Inc. However, in an early Jan. 18 report they said, "The broader market could open higher today as investors become more confident in a larger rate cut (0.5-0.75%) from the Federal Reserve at this month's meeting, and President [George W.] Bush details his plans for an economic stimulus package."
Olivier Jakob of Petromatrix GMBH, Zug, Switzerland, said, "On the positive side, West Texas Intermediate has still managed to hold on to the $90/bbl support, which is still a very high flat price level taking in consideration the overall gloom and doom, and the product cracks have been holding (which is to be expected when the refineries are shutting for maintenance)."
Meanwhile, Ronald J. Barone, managing director of UBS Securities LLC, New York, said, "We are lowering our 2008 and 2009 composite spot natural gas forecasts to $7.25/MMbtu and $7.60/MMbtu, respectively, from $8/MMbtu and $8.25/MMbtu, respectively." These downward revisions are based on the following:
-- Stronger-than-expected US gas production growth [an estimated 2.5% in 2008], primarily from increased production from the Barnett Shale in Texas.
-- US gas storage volumes that are well above historical levels (surplus of 167 bcf vs. 5-yr average).
-- Warmer-than-normal weather this winter, coupled with a positive spring outlook for hydroelectric production.
-- A slowdown in US economic growth (UBS senior economist Maury Harris has reduced his 2008 GDP growth forecast to 2%, from 2.4%, in November).
"Canadian imports have held steady to date despite reduced drilling activity, adding to the storage surplus," Barone said. "With half the winter behind us, weather has been 6.1% warmer than normal. The aggregate supply growth has been somewhat offset by stronger-than-expected demand, but it has not been enough to reduce the storage surplus to a level that will support a natural gas price in excess of $8/MMBtu. As always, weather remains a wildcard."
UBS raised its 2008 and 2009 WTI crude price forecasts to $85/bbl from $74/bbl in 2008 and to $78/bbl from $73.25/bbl in 2009, however, as a result of greater-than-expected tightening of market fundamentals in the fourth quarter of 2007, "which drained crude oil inventories," and "a slower-than-expected economic deceleration in the US economy."
Energy prices
The February contract for benchmark US light, sweet crudes dropped 71¢ to $90.13/bbl Jan. 17 on the New York Mercantile Exchange. The March contract lost 79¢ to $89.57/bbl. On the US spot market, WTI at Cushing, Okla., was down 71¢ to $90.13/bbl. Heating oil for February declined by 1.49¢ to $2.50/gal on NYMEX. The February contract for reformulated blend stock for oxygenate blending (RBOB) dipped 1.15¢ to $2.27/gal.
The February natural gas contract dropped 5.2¢ to $8.08/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $8.22/MMbtu.
In London, the March IPE contract for North Sea Brent crude fell 75¢ to $88.75/bbl. The February gas oil contract increased by $5.50 to $786/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes slipped 12¢ to $86.30/bbl on Jan. 17.
Contact Sam Fletcher at [email protected].
