MARKET WATCH: Crude prices continue to fall

March 25, 2008
Crude prices continued to fall Mar. 24 amid continued worries about slowing energy demand and the recovery of the US dollar from recent lows against the euro.

Sam Fletcher
Senior Writer

HOUSTON, Mar. 25 -- Crude prices continued to fall Mar. 24 amid continued worries about slowing energy demand and the recovery of the US dollar from recent lows against the euro.

However, Olivier Jakob at Petromatrix, Zug, Switzerland, reported Mar. 25, "Overnight the dollar index has been losing some of its recent gains; hence when combined with the rebound in other commodities and improving cracks and margins we could start to see some bottoming action on crude oil in front of $100/bbl until a further negative confirmation either from the dollar index or the weekly statistics."

Reports last week showed total US consumption of petroleum was running 3.2% below year-ago levels. Also, Iraq's oil ministry said crude exports from that country increased by 10,000 b/d in February to preinvasion levels of 1.93 million b/d, primarily as the result of improved security for the Kirkuk oil field and the northern export pipeline to Turkey (OGJ Online, Mar. 25, 2008). Sabotage and technical problems frequently halted exports from northern Iraq since the 2003 US-led invasion. However, Iraqi officials said they've managed so sustain 393,000 b/d of export from the northern oil fields since last summer. Iraq's primary source of oil for export is from its southern fields through its Basra terminal that loaded 1.54 million b/d, officials said.

On the other hand, sales of existing homes increased more than was expected in February, according to another US report. Moreover, the National Weather Service said US demand for heating oil should be 3.5% above normal this week. Cold weather also is forecast for northwest Europe. That should temporarily offset any demand slowdown, analysts said.

Meanwhile, China increased its crude imports 18.1% to 3.6 million b/d, tying the record it set last April.

"Prices in the oil complex have fallen sharply over the last 10 days, with the front-month [futures contract in New York] dropping from over $111/bbl to $100-101/bbl," said the Societe Generale Group in Paris. "It is possible that the current correction in oil prices could continue, given seasonal weakness in crude demand (due to refinery maintenance) and product demand (winter heating season is ending, and summer driving season is months away, with gasoline fundamentals looking weak going forward). In addition, there is room for further reductions in non-commercial net length. However, our outlook is constructive."

Analysts in the Houston office of Raymond James & Associates Inc. reported, "The commodity markets were a mixed bag as crude oil fell for a third consecutive [session], but natural gas rose nearly 3%."

In the Mar. 24 session, the dollar index "had more influence on crude oil than the rebounding gasoline crack," Jakob said. "Gasoline managed to regain some of its deep discount to heating oil and even managed to move back to a backwardation on the nearby months. Products will expire [Mar. 31] and we will expect to see strong volatility in the product relative values," he said.

Energy prices
The May contract for benchmark US crude fell as low as $99.95/bbl in intraday trading before climbing back to $100.86/bbl at closing, down 98¢ for the day Mar. 24 on the New York Mercantile Exchange. The June contract lost 82¢ to $100.24/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., fell $3.42 to $101.02/bbl. Heating oil for April delivery dropped 1.41¢ to $2.96/gal on NYMEX. The April RBOB contract continued climbing, however, up 3.61¢ to $2.64/gal.

The April natural gas contract jumped 26.4¢ to $9.33/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 35¢ to $9.03/MMbtu.

In London, the May IPE contract for North Sea Brent dropped 52¢ to $99.86/bbl. The April contract for gas oil increased by $6.50 to $928.50/tonne.

The average price for Organization of Petroleum Exporting Countries' basket of 13 benchmark crudes dropped 26¢ to $96.15/bbl on Mar. 24.

Contact Sam Fletcher at [email protected].