Sam Fletcher
OGJ Senior Writer
HOUSTON, Nov. 9 -- Front-month crude oil rose slightly Nov. 8, closing above $87/bbl at a 2-year high on the New York market, despite a stronger dollar.
“Not to be outdone, gas jumped 4%, easily hurdling the $4/Mcf mark as investors shifted their focus from the supply glut towards speculation that a colder winter could trigger demand,” said analysts in the Houston office of Raymond James & Associates Inc. Both crude and gas were pushing higher in early trading Nov. 9.
“Unlike base and precious metals, crude oil is still looking towards the dollar for direction, coming under pressure overnight from a stronger dollar before rallying,” said Leon Westgate at Standard New York Securities Inc., the Standard Bank Group. The Federal Reserve Bank's second round of quantitative easing (QE2) has heightened inflationary fears, “particularly in emerging markets, with increased investor interest and the potential for stockpiling behavior likely to provide further support for prices,” he said. “The underlying oil fundamentals still remain rather weak, however, and we expect any further rally in oil price to be driven by the financial markets rather than anything else.”
Olivier Jakob at Petromatrix, Zug, Switzerland, asked Nov. 9, “Is the [Fed Chairman Ben] Bernanke magic already over? If Day One of QE2 (Nov. 4) produced a strong rally, Days Two and Three produced a stalling market both in equities and in oil. The Fed did buy (as expected) $6.3 billion Treasuries yesterday, but that did not help much and we will now have to wait…for the next Fed purchase.” Meanwhile, the trading volume on the New York stock and commodities markets “was on the low side, and we think that low volume could be an ongoing problem since the manipulation from the Fed prevents markets [from] perform their price discovery function.”
Now, Jakob said, “It is the Irish that are derailing the Bernanke grand plan. With the rising cost of credit default swap (CDS) on Ireland, it is starting to be increasingly likely that they, after Greece, will have to be bailed out, and after that we can start to worry about Portugal. There might be a value risk on the US dollar due to the Fed, but there is a credit risk on the euro. The euro is again well below its resistance of 1.40 and we will have to focus on the support at 1.374. The German-Irish 10-year bond spread has risen to a new record of 550 basis points. There might be a value risk on the US Dollar due to the Fed, but there is a credit risk on the euro.”
Even before the Nov. 10 opening of the Group of 20 (G20) summit in South Korea, President Barack Obama was slammed by foreign finance ministers for artificially lowering the value of the dollar through Bernanke’s E2 economic stimulation plan.
Meanwhile, Jakob reported, “India is raising gasoline prices, and if world prices are maintained at current levels, it will not take long before China has to increase internal prices again. The Fed might be looking at inflation [except for] food and energy, but the emerging economies are looking at inflation mostly on food and energy.”
He noted, “It was only in early 2009 that China moved to internal prices linked to world prices and as a result diesel in China is now more expensive than in the US and 36% higher than at the start of 2008 (US diesel pump prices that are still 9% below the levels of early 2008). Chinese car sales in October were flat vs. September but are a good 27% higher than last year.
Raymond James analysts said, “The bullish Chinese auto data [are] supportive in terms of future gasoline demand trends in the country, and for crude oil demand generally. Interestingly, however, reports from China suggest some provinces are currently experiencing a diesel shortage. This is happening almost a month after the harvest season has ended. Given that China had been exporting diesel in the previous months, the tightness may be due to the fuel being held in storage, perhaps in anticipation of higher prices to come, rather than due to a shortage related to increased demand.”
In other news, the Movement for the Emancipation of the Niger Delta claimed responsibility for kidnapping seven foreigners from a rig in a raid earlier this week on Afren PLC’s Okoro field. Identities have not yet been released of the two French nationals, two Indonesians, two US citizens and one Canadian were taken Nov. 7.
Energy prices
The December contract for benchmark US sweet, light crudes advanced 21¢ to $87/06/bbl Nov. 8 on the New York Mercantile Exchange. The January contract increased 23¢ to $87.71/bbl.
On the US spot market, West Texas Intermediate at Cushing, Okla., was up 21¢ to $87.06/bbl. Heating oil for December delivery increased 1.29¢ to $2.40/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dipped by 0.15¢ but remained essentially unchanged at $2.18/gal.
The December natural gas contract escalated by 15.1¢ to $4.09/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 6¢ to $3.57/MMbtu.
In London, the December IPE contract for North Sea Brent crude climbed 35¢ to $88.64/bbl. Gas oil for November gained $3.25 to $738.50/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 29¢ to $84.62/bbl.
Contact Sam Fletcher at [email protected].
