MARKET WATCH: Crude prices slip as other commodities climb

Crude futures prices slipped slightly Dec. 31, but other commodities climbed higher during the last day of 2007 trading in the New York market.

Sam Fletcher
Senior Writer

HOUSTON, Jan. 2 -- Crude futures prices slipped slightly Dec. 31, but other commodities climbed higher during the last day of 2007 trading in the New York market as the US dollar posted the strongest rebound in 2 weeks because home sales unexpectedly increased in November.

"After closing 2007 at $95.98/bbl, crude is trading more than 2% higher to start 2008," said analysts Jan. 2 in the Houston offices of Raymond James & Associates Inc. The New York and London markets were closed Jan. 1, New Year's Day.

In a separate report, Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "The main development over the New Year's break came from Nigeria. A militant warlord who had his camps attacked by military helicopters on [Dec. 30], retaliated Jan. 1 with an attack on Port Harcourt which left about a dozen dead. With the military and the militant warlords engaged in a violent tit-for-tat, the risk for oil disruptions in Nigeria remains higher than in the past few months."

In 2007, crude futures prices escalated more than $35/bbl, or 57%, the biggest annual percentage gain in 5 years, due to Middle East tensions, rising demand, and supply disruptions. Meanwhile, the US dollar fell against the euro for a second year. Crude prices hit a record high of $99.29/bbl Nov. 21 on the New York Mercantile Exchange as the dollar—the currency of exchange for crude markets worldwide—declined against other major currencies.

The dollar index managed to rebound Dec. 31 "and remains a key directional input to be monitored as we start 2008," Jakob said. "The start of the year will have on the positive side the upcoming reweighing of the commodity indices (and in particular RBOB gasoline) and the country risk of Nigeria and Turkey-Iraq. On the negative side the weather patterns are calling for a substantial warming in the US Northeast while Western Europe should also be confronted with warmer temperatures over the next 10 days," he said.

Market expectations that another draw in crude inventories will be reported Jan. 3 by the Department of Energy helped fuel price increases, Raymond James analysts said. Natural gas prices rose nearly 3% in premarket trading Jan. 2 "and have traded higher for the past 3 days, they said. "We expect prices to get stronger in the short term as the year-over-year storage deficit grows in the next couple of weeks. In 2008 we are anticipating another strong year for crude based on bullish supply and demand fundamentals while higher storage levels should create a bearish environment for natural gas prices most of the year."

Energy prices
The February crude contract for US light, sweet crudes slipped 2¢ to $95.98/bbl Dec. 31 on NYMEX. However, the March contract inched up 2¢ to $94.55/bbl. The January heating oil contract increased 0.74¢ to $2.48/gal. The January contract for reformulated blend stock for oxygenate blending (RBOB) gained 1.61¢ to $2.48/gal.

The February natural gas contract climbed 9.7¢ to $7.48/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 33.5¢ to $7.47/MMbtu.

In London, the February IPE contract for North Sea Brent dropped 3¢ to $93.85/bbl. Gas oil for January lost $5.75 to $839.25/tonne.

The average price of the Organization of Petroleum Exporting Countries' basket of 12 benchmark crudes picked up 53¢ to $90.92/bbl. OPEC's basket price for crude averaged $69.02 in 2007 vs. the previous record high average of $61.08 in 2006.

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