MARKET WATCH: Crude prices continue to whiplash

The front-month contract for benchmark US crude fell more than $5/bbl Nov. 5, giving back most of the 10% gain from the biggest presidential election-day rally in 24 years.

Nov 6th, 2008

Sam Fletcher
Senior Writer

HOUSTON, Nov. 6 -- The front-month contract for benchmark US crude fell more than $5/bbl Nov. 5, giving back most of the 10% gain from the biggest presidential election-day rally in 24 years that in turn had wiped out a nearly 6% loss in just the previous session in a series of whiplash moves over the last 3 days of trade in the New York market.

Some blamed "election fatigue," but others cited more logical reasons. "The broader markets were crushed [Nov. 5] as the [Dow Jones Industrial Average] tumbled 486 points and change (5%). Energy stocks did not fare any better," said analysts in the Houston office of Raymond James & Associates Inc. "Commodities did not get any help from a bearish crude report from the [the Energy Information Administration]."

EIA reported commercial US crude inventories remained unchanged at 311.9 million bbl in the week ended Oct. 31, despite a Wall Street consensus for a 1 million bbl build. Gasoline stocks increased 1.1 million bbl to 196.1 million bbl in the same period vs. a consensus for a 700,000/bbl loss. Distillate fuel inventories rose 1.2 million bbl to 127.8 million bbl, a little below an expected 1.3 million bbl climb (OGJ Online, Nov. 5, 2008).

Olivier Jakob at Petromatrix, Zug, Switzerland, said "Both the Dow and crude oil had been able to break key resistance levels Nov. 4, but they could not hold it for more than 24 hr, and the global markets embarked into a correction back to the previous range. Pressure was evident across the commodity spectrum despite the Dollar Index being capped."

Nov. 6-7 will be "Dollar Index days" in the market, he said. The European Central Bank was slated to make a decision on its interest rates Nov. 6, while the US is to publish unemployment data Nov. 7. "Whatever the cuts by the ECB, the European rates will remain above the US and with the money-printing programs in the US we wonder how much upside there is really left in the Dollar Index," said Jakob.

He said, "The only bright spot is that the US consumer keeps on spending less on gasoline. This has not yet translated in a change of pattern on gasoline consumption, but these savings are going somewhere. Due to the combination of lower consumption and lower pump prices, on a weekly basis the US consumer is now spending about $5 billion less than in the summer peak, about $2 billion less than in the similar week last year and is moving back to absolute spending levels seen during the similar period in 2006."

Meanwhile, EIA officials reported the injection of 12 bcf of natural gas into US underground storage in the week ended Oct. 31, well below the Wall Street consensus of 25-27 bcf. That was down from injections of 46 bcf the previous week and 36 bcf during the same period last year. US gas storage stands at 3.4 tcf going into the winter demand season, down 130 bcf from a year ago but up 78 bcf from the 5-year average. Michael Schmitz at Banc of America Securities LLC said, "We do not believe that this week's injection reflects any change in supply-demand fundamentals from recent weeks."

Energy prices
The December contract for benchmark US light, sweet crudes fell $5.23 to $65.30/bbl Nov. 5 on the New York Mercantile Exchange. The January contract dropped $5.18 to $66.01/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $5.23 to $65.30/bbl. Heating oil for December lost 10.69¢ to $2.05/gal on NYMEX. The December contract for reformulated blend stock for oxygenate blending (RBOB) retreated 10.83¢ to $1.42/gal.

The December natural gas contract continued to climb, however, up 3¢ to $7.25/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., bumped up 13¢ to $6.95/MMbtu.

In London, the December IPE contract for North Sea Brent dropped $4.57 to $61.87/bbl. The November contract for gas oil ended its rally, falling $23.75 to $651.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 benchmark crudes gained $1.27 to $58.94/bbl on Nov. 5.

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