MARKET WATCH: Oil price, OPEC production continue to climb

Dec. 2, 2009
The price of crude continued climbing Dec. 1 in the New York market, up 1.5% despite reports production by the Organization of Petroleum Exporting Countries rose in November to the highest output this year.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 2 -- The price of crude continued climbing Dec. 1 in the New York market, up 1.5% despite reports production by the Organization of Petroleum Exporting Countries rose in November to the highest output this year. Also, Iran freed five British sailors detained after their racing yacht accidentally crossed into Iranian waters in the Persian Gulf.

“We did not want to price too great a premium on the British yachtsmen captured by Iran, and they are now reported to be released,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

Reuter’s news service reported the 11 OPEC members excluding Iraq produced 26.52 million b/d in November from a revised 26.43 million b/d in October, far above their quota target of 24.84 million b/d. Dow Jones Newswires put OPEC production at 26.65 million b/d in November.

In New Orleans, analysts at Pritchard Capital Partners LLC said, “Crude traded higher on renewed dollar weakness and reports that Chinese manufacturing grew at the fastest pace in 5 years.” They said, “Clearly the weaker dollar and the Chinese manufacturing data are evidence that the reflation trade is working. Crude peaked at $82.58/bbl on Oct. 21, and to get the momentum investors interested again, it will probably need to break and close above this level.”

Jakob said, “Trading yesterday showed some renewed strong intraday link to the dollar and equities, but West Texas Intermediate is still undervalued to its 2009 correlation. While WTI is still led by exogenous inputs, we are in a situation where the dollar needs to be pushed to lower and lower lows to maintain an equivalent level of support on oil, but that process increases the bubble implosion risk.”

Meanwhile, the latest Purchasing Manager’s Index posted by HSBC Group, one of the world’s largest banking and financial services organizations, had a reading of 55.7, the highest since April 2004.

Analysts in the Houston office of Raymond James & Associates Inc. reported, “On the natural gas side, as a frigid winter appears to be the market's only hope for price support, prices dipped yesterday on conflicting weather forecasts.”

However, Pritchard Capital Partners said, “One positive sign for the natural gas market is the recent improvement in hub prices. The major natural gas hubs are all now above $4/Mcf with the exception of the Agua Dulce hub in Texas. The higher hub prices are most likely a reflection of higher natural gas demand as we move into winter and withdrawal season. The natural gas picture seems fairly grim due to the current oversupplied situation in the market, but this close to withdrawal season it is unlikely natural gas will continue to slump.”

US inventories
The Energy Information Administration said Dec. 2 commercial US benchmark crude inventories increased by 2.1 million bbl to 339.9 million bbl in the week ended Nov. 27. That is sure to surprise Wall Street analysts who were expecting a draw of 500,000 bbl. Gasoline inventories jumped by 4 million bbl to 214.1 million bbl, while the Wall Street consensus was for a modest increase of 800,000 bbl. EIA reported a 1.2 million bbl drop in distillate fuel inventories to 165.7 million bbl, still above average for the time of year. Wall Street expected a draw of 400,000 bbl.

Imports of crude into the US were down 549,000 b/d to 8.4 million b/d in that same week. Over the 4 weeks through Nov. 27, crude imports into the US averaged 8.6 million b/d, down 1.3 million b/d from the comparable period in 2008.

The input of crude into US refineries dropped 127,000 b/d to 13.8 million b/d in the latest week with units operating at 79.7% of capacity. Gasoline production decreased to 9 million b/d, and distillate fuel production declined to 3.9 million b/d.

Energy prices
The January contract for benchmark US light, sweet crudes rose $1.09 to $78.37/bbl Dec. 1 on the New York Mercantile Exchange. The February contract gained $1.11 to $79.77/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.09 to $78.37/bbl. Heating oil for January delivery increased 3.01¢ to $2.08/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month advanced 3.08¢ to $2.04/gal.

The January natural gas contract price continued to drop, down 8.6¢ to $4.76/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 4.5¢ to $4.36/MMbtu. Gas remains the worst performing commodity of 2009.

In London, the January IPE contract for North Sea Brent crude increased 88¢ to $79.35/bbl. Gas oil for December escalated by $19.25 to $633.50/tonne.

The average price for OPEC’s basket of 12 reference crudes was up $1.67 to $77.88/bbl on Dec. 1.

Contact Sam Fletcher at [email protected].