MARKET WATCH: New front-month crude contract at 3-month low

Jan. 24, 2008
The front-month crude futures price tumbled to a 3-month low below $87/bbl Jan. 23 as recession fears continued to flail the market.

Sam Fletcher
Senior Writer

HOUSTON, Jan. 24 -- The front-month crude futures price tumbled to a 3-month low below $87/bbl Jan. 23 as recession fears continued to flail the market.

Some analysts theorized that investment funds and speculators may be selling off commodity positions to cover margin calls and finance losses in equity markets. Oil has lost more than $3/bbl so far this week, even with the New York market closed Jan. 21 for a US holiday.

However, the crude futures market was reported rallying in early premarket trading Jan. 24 "due in part to two bullish data points," said analysts in the Houston office of Raymond James & Associates Inc. "First, China announced that its fourth-quarter gross domestic product grew by an impressive 11%. Second, several ministers [of the Organization of Petroleum Exporting Countries] have publicly stated they will not support a production increase at the cartel's Feb. 1 meeting. Both of these announcements lend support to the tightness in the crude market," they said.

US inventories
The Energy Information Administration under the Department of Energy reported Jan. 24 commercial US inventories of crude increased by 2.3 million bbl to 289.4 million bbl during the week ended Jan. 18. That exceeded Wall Street analysts' consensus of 1.9 million bbl. US gasoline jumped by 5 million bbl to 220.3 million bbl during the same week. That exceeded analysts' consensus of a 1.4 million bbl build to above average for this time of year. Distillate fuel inventories declined by 1.3 million bbl to 128.5 million bbl vs. an expected dip of 100,000 bbl. Propane and propylene inventories decreased by 3.3 million barrels to 45.4 million bbl.

Imports of crude into the US fell 233,000 b/d to 10.2 million b/d during that same period. The input of crude into US refineries declined 91,000 b/d to 14.9 million b/d with refineries operating at 86.5% capacity that week. Gasoline production slipped to 9 million b/d while distillate fuel production fell to 4.1 million b/d.

The release of EIA statistics marks "the first time in more then a week" that oil traders can "focus on something else than the Dow Jones Industrial Average (DJIA)," said Olivier Jakob of Petromatrix GMBH, Zug, Switzerland. "The technical picture on West Texas Intermediate remains for now unchanged in a strongly defined negative momentum and has not been able yet to confirm any attempts at rebounds. The WTI $86/bbl floor of the previous correction has, however, been able to hold and will need to be defended again or run the chance of having the weekly charts turn negative," he said.

Energy prices
The new front-month March contract traded at $86.65-89.44/bbl Jan. 23 until closing at $86.99/bbl, down $2.22 for the day on the New York Mercantile Exchange. The April contract lost $2.14 to $86.62/bbl On the US spot market, WTI at Cushing, Okla., was down $2.54 to $87.32/bbl. Heating oil for February delivery dropped 4.95¢ to $2.42/gal on NYMEX. The February contract for reformulated blend stock for oxygenate blending (RBOB) lost 2.98¢ to $2.25/gal.

Jakob said, "The RBOB gasoline crack has been improving and while gasoline benefits somewhat from the ongoing refinery maintenance, on a technical basis it is also testing the stronger support base of the 200-day moving average."

The February natural gas contract dropped 4.9¢ to $7.62/MMbtu on NYMEX. On the US spot market, gas as Henry Hub, La., fell 10¢ to $7.86/MMbtu. EIA reported the withdrawal of 155 bcf of gas from US underground storage during the week ended Jan. 18. That compared with withdrawals of 59 bcf the prior week and 8.9 bcf at this period a year ago. US gas storage now stands at 2.5 tcf, down 247 bcf from a year ago at this time but up 174 bcf above the 5-year average.

In London, the March IPE contract for North Sea Brent crude lost $1.83 to $86.62/bbl. The February gas oil contract dropped $6 to $770.75/tonne.

The average price for OPEC's basket of 12 reference crudes lost 84¢ to $84.68/bbl on Jan. 23.

Contact Sam Fletcher at [email protected].