Sam Fletcher
OGJ Senior Writer
HOUSTON, Dec. 21 -- The Standard & Poor’s 500 index peaked Dec. 20 at its highest level in 2 years, led by energy industrial stocks. This and speculation of increased demand for gasoline for US holiday driving and a positive economic outlook boosted the price of the expiring January crude contract 1.5% in the New York market.
“Natural gas seemed to reach for the stars yesterday, advancing 4.2% on colder weather forecasts,” said analysts in the Houston office of Raymond James & Associates Inc. However, they reported both oil and gas were in the red during early trading Dec. 21.
Oil rallied late in the Dec. 20 session “with prices recovering from a rather lackluster start to the week,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “The leader of the oil complex was again the reformulated blend stock for oxygenate blending contract (RBOB), however, which gained 2.6%,” he said.
Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The S&P started its session on the weak side, but West Texas Intermediate was supported at $88/bbl on the February contract, rebounded, took the oil equities higher, and then the S&P was back in the green.” He reported, “The correlation between the flat price of WTI and the S&P continues to be at an extremely high level. The WTI correlation to the dollar remains inexistent; that correlation is only valid when the dollar becomes a trading input for the S&P. The primary correlation is between WTI and the S&P.”
With Canada maximizing production, the WTI market remains well supplied. “This in turn is maintaining a contango structure on WTI, which on an annualized basis is currently at $9.50/bbl; hence the passive long investor in WTI will not be breakeven next year unless WTI reaches $99/bbl at the end of 2011,” Jakob predicted.
Jakob said, “The fact that WTI has such a strong correlation to the S&P 500 and that the S&P 500 is artificially supported by the US Federal Reserve then provides an opportunity for producers to hedge some of their production. This because the price of oil is currently pricing financial dynamics that have not necessarily anything to do with the cost of producing oil and which can in turn start to impact demand. The same dynamics were at play in 2008.”
In other news, the Chinese central government announced Dec. 21 its domestic gasoline and diesel prices would be raised 4% effective Dec. 22. “The increase has been much anticipated locally due to the rally in international oil prices over the last 2 months. The latest move should boost domestic refinery runs and reduce hoarding behavior,” Zhang said.
He reported, “The euro-zone debt crisis continues to spook investors periodically, with the yield of euro-zone peripheral government bonds moving up again in recent days. However, the oil market is currently focusing on cold weather and better-than-expected US economic data for now. Due to reduced liquidity around year-end, price moves in either direction may tend to be exaggerated.”
Energy prices
The expiring January contract for benchmark US light, sweet crudes gained 79¢ to $88.81/bbl Dec. 20 on the New York Mercantile Exchange. Other oil futures contracts also continued climbing, with the February contract advancing 77¢ to $89.37/bbl. On the US spot market, WTI at Cushing, Okla., was up 79¢ to $88.81/bbl, in step with the January futures price. Heating oil for January delivery increased 1.58¢ to $2.49/gal on NYMEX. RBOB for the same month escalated by 6¢ to $2.38/gal.
The January natural gas contract jumped 17.1¢ to $4.24/MMbtu, continuing its rebound on NYMEX. On the US spot market, gas at Henry Hub, La., bumped up 8¢ to $4.09/MMbtu.
In London, the February IPE contract for North Sea Brent crude was up $1.07 to $92.74/bbl, still at a large premium to WTI. Gas oil for January dropped $2.25 to $764.25/tonne, likely a result of the virtual shutdown of automobile, train, and aircraft traffic due to snow and freezing cold across a large portion of Europe and England.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes lost 19¢ to $88.59/bbl.
Contact Sam Fletcher at [email protected]
Rystad Energy.
