MARKET WATCH: Crude price dips, ends records run

March 17, 2008
Crude futures prices pulled back slightly Mar. 14, ending a string of record intraday or closing highs—usually both—through seven consecutive sessions on the New York Market.

Sam Fletcher
Senior Writer

HOUSTON, Mar. 17 -- Crude futures prices pulled back slightly Mar. 14, ending a string of record intraday or closing highs—usually both—through seven consecutive sessions on the New York Market.

Some attributed the small loss to speculators taking profits from the recent escalation of $100-110/bbl. However, as Olivier Jakob at Petromatrix, Zug, Switzerland, pointed out, West Texas Intermediate gained $5.06/bbl for the week to record highs, making that the sixth consecutive week with overall gains above $3/bbl. In petroleum products, front-month heating oil "outperformed the complex by far with gains of $8.38/bbl," while reformulated blend stock for oxygenate blending (RBOB) lost 0.42¢/bbl, Jakob reported Mar. 17.

Apparently the tight market for distillates helped limit further losses for crude in the Mar. 14 session. Heating oil distributors in the US Northeast are asking the federal government to release emergency reserves of that fuel due to low regional inventories, but there has been no response yet.

Meanwhile, in an emergency move over the weekend to defuse the credit crisis, the US Federal Reserve said it would begin Mar. 17 to provide short-time emergency loans to Wall Street investment houses. The Fed also cut its emergency lending rate to 3.25% for financial institutions from 3.5%. That move came after JP Morgan Chase & Co. agreed to acquire rival Bear Stearns Cos. for $236.2 million. That represents "a 98% discount to what Bear Stearns Cos. was trading at the start of the year," said analysts at Raymond James & Associates Inc. "This has reignited concerns about the credit markets and should drive stocks lower, despite the Fed's decision to cut the discount rate 0.25%," they said Mar. 17. "Additionally, expect the Fed funds target rate to be slashed by 1 percentage point [on Mar. 18] in an effort to keep the markets stable."

Energy prices
The April contract for benchmark US light, sweet crudes dipped 12¢ to $110.21/bbl Mar. 14 on the New York Mercantile Exchange. The May contract lost 43¢ to $108.74/bbl. On the US spot market, WTI was down 12¢ to $110.21/bbl. Heating oil for April delivery hit an intraday record price of $3.22/gal on NYMEX before closing at $3.15/gal, up 2.17¢ for the day. RBOB for the same month inched up 0.66¢ to $2.69/gal.

The April natural gas contract dropped 36.2¢ to an average $9.87/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., gained 8.5¢, also closing at an average $9.87/MMbtu. The fourth quarter of 2007 "saw an unprecedented 3.6% sequential increase and a 7% year-over-year increase in US natural gas production from publicly traded companies," said Raymond James analysts. "We believe the primary factor behind this growth has been stronger productivity from the rapidly growing onshore resource plays (i.e., Barnett shale, etc), temporarily overcoming the declining initial well productivity trends of core US supply over the past decade. In addition, this quarter saw the 'one time' offshore gas supply growth from the Independence Hub connection in the Gulf of Mexico."

They said, "It is this continued surge in domestic gas supply, coupled with an anticipated modest up-tick in summer LNG imports, that is the cornerstone of our bearish outlook on US natural gas for summer 2008, although a colder end to winter has certainly tightened the equation more than we had assumed."

In London, the April IPE contract for North Sea Brent crude hit an all-time high of $108.02/bbl during trading Mar. 14 before closing at $107.54/bbl, up just 1¢ for the day. The April gas oil contract also hit a record intraday high, $1,000.50/tonne, prior to closing at $997.75/tonne, a $20 gain for the day.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes increased 49¢ to $102.88/bbl on Mar. 14. So far this year, OPEC's basket price has averaged $91.33/bbl, up from $69.08/bbl for all of 2007.

Contact Sam Fletcher at [email protected].