MARKET WATCH: Crude oil price gains, separates from equity market

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 24 -- Crude oil prices rose Sept. 23, with crude up 0.6% after 2 days of losses in the New York futures market, as traders ignored falling equity prices and a strengthening dollar.

“Natural gas also managed to enter positive territory, rising 1.3% after the Energy Information Administration reported an injection of 73 bcf [into US underground storage during the week ended Sept. 17], which was well below the consensus estimate of 87 bcf,” said analysts in the Houston office of Raymond James & Associates Inc. The latest injection increased working gas in storage to 3.34 tcf, This is down 175 bcf from the comparable week in 2009 but 195 bcf above the 5-year average (OGJ Online, Sept. 23, 2010).

“The whirlwind relationship between crude oil and the stock market is on the fritz,” Raymond James analysts said, citing a report in the Sept. 24 Wall Street Journal. “A united interest in the pace of the economic recovery had driven the correlation between Standard & Poor’s 500 index and crude futures to a peak of 76% in late August,” the analysts said. “Recently, however, record high US petroleum inventories have put a damper on crude prices, while the stock market has rallied off a wave of mergers, increased dividends, and stock buybacks.”

They said the correlation between the equity market and crude prices fell to 47% at the close of trading Sept. 23, still above the 37% average since 2008. “It appears as though crude has begun to unhinge itself from the movements of the broader markets, as price fluctuations once again reflect changes in supply and demand fundamentals rather than solely economic news,” Raymond James analysts said.

The US dollar strengthened against the euro on Sept. 23, but not against the yen.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The Bank of Japan could not intervene yesterday as it would have been too insulting to do so when the Japanese prime minister was meeting with [US President Barack] Obama. “The meetings are now over and it is very likely that the Bank of Japan is again intervening. The question is now whether the Swiss National Bank and Brazil will join in the party. In our opinion, the risk of trading crude oil as a derivative of the dollar is increasing and becoming too binary when the central banks are engaged in currency wars.”

Jakob also noted, “The same financial institutions that were beating the bullish drum in the second quarter calling for massive stock draws in the third quarter are now doing the same for the fourth quarter. While we agree that there will be some seasonal stock draws in the US during the fourth quarter, we do not agree that they will be disruptive as they will be coming from a record-high base and will be organized and scheduled by the industry. If we consider that the last time there was a genuine tight oil market was at the end of 2007 [through] early 2008, then US petroleum stocks would need to draw 180 million bbl in the fourth quarter to reach the stock levels of end 2007 by the end of this year. That is a 14 million bbl draw each single week during the fourth quarter and will not happen.”

Moreover, he said, “To reach the ‘comfortable’ stock levels of end 2009, US stocks would need to draw 100 million bbl in the fourth quarter, which is a 7.5 million bbl draw in each single week. We doubt as well that this will happen. Bottom line, even [with] lower than current record high levels, the US stock should remain well above their historical average in the fourth quarter.”

Energy prices
The November contract for benchmark US light, sweet crudes rebounded 47¢ to $75.18/bbl Sept. 23 on the New York Mercantile Exchange. The December contract regained 24¢ to $76.54/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 57¢ to $73.43/bbl as it tried to get back in step with the front-month crude futures contract. Heating oil for October delivery inched up 0.75¢ to $2.07/MMbtu on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 1.6¢ to $1.92/gal.

The October natural gas contract continued to climb, up 5.3¢ to $4.02/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 8¢ to $4.10/MMbtu.

In London, the November IPE contract for North Sea Brent crude increased 16¢ to $78.11/bbl, still priced at a premium to comparable WTI. Gas oil for October gained $7.25 to $677.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 13¢ to $74.28/bbl.

Contact Sam Fletcher at [email protected].