MARKET WATCH: US payrolls, energy prices fall

Feb. 4, 2008
Energy prices fell sharply Feb. 1, down for a second consecutive session on the New York market, after a weaker-than-expected US payroll report added to indications of a pending recession.

Sam Fletcher
Senior Writer

HOUSTON, Feb. 4 -- Energy prices fell sharply Feb. 1, down for a second consecutive session on the New York market, after a weaker-than-expected US payroll report added to indications of a pending recession.

The US Department of Labor said nonfarm payrolls fell by 17,000 in January, marking the first decline in that month since August 2003.

Meanwhile, the oil market seemed unaffected by an earlier decision that day by ministers of the Organization of Petroleum Exporting Countries to make no production changes. The general assumption that OPEC would take no action had already been priced into the market, analysts said (OGJ Online, Feb. 1, 2008).

"Friday was rough for the commodity markets as both oil and natural gas tumbled late in the trading session," said analysts in the Houston office of Raymond James & Associates Inc. The front-month crude futures price was down more than 3%. The front-month natural gas contract fell more than 4% after the US Energy Information Administration reported a 3.3 bcfd increase in November gas production.

Raymond James analysts said production from Independence Hub—a semisubmersible platform moored in 8,000 ft of water on Mississippi Canyon Block 920 about 123 miles southeast of Biloxi, Miss.—as well as production from onshore shale plays are continuing to boost US supply. The analysts expect continued downward pressure on gas prices as the storage deficit shrinks, compared to year-ago figures, due to warmer weather in coming weeks.

In a Feb. 4 report, Soleil-Back Bay Research analyst Jacques H. Rousseau said commercial US petroleum inventories should be starting a seasonal decline after rising 7% since mid-November. "Last week, we upgraded the refining sector due to our view that seasonally rising demand and falling supply should result in a 10% decrease to refined product inventories (gasoline, distillate, and jet fuel) by the end of the first quarter. We believe that falling inventory levels are the key leading indicator for improvements in refining margins and stock prices," Rousseau said.

Energy prices
The March contract for benchmark US light, sweet crudes dropped $2.79 to $88.96/bbl Feb. 1 on the New York Mercantile Exchange. The April contract fell $2.68 to $89/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $2.79 to $88.97/bbl. Heating oil for March delivery lost 8.02¢ to $2.45/gal on NYMEX. The March contract for reformulated blend stock for oxygenate blending declined 7.38¢ to $2.28/gal.

The March natural gas contract fell 33.4¢ to $7.74/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 20.5¢ to $7.90/MMbtu.

In London, the March IPE contract for North Sea Brent crude lost $2.77 to $89.44/bbl. However, the February gas oil contract gained $3.25 to $800.25/tonne.

The average price for OPEC's basket of 12 reference crudes declined by 38¢ to $88.10/bbl on Feb. 1.

Contact Sam Fletcher at [email protected].