MARKET WATCH: Crude futures price hits 20-month low

Concerns about a faltering world economy continued to drive down energy prices to a 20-month low for crude Nov. 6 in the New York market.

Sam Fletcher
Senior Writer

HOUSTON, Nov. 7 -- Concerns about a faltering world economy continued to drive down energy prices to a 20-month low for crude Nov. 6 in the New York market.

Before the New York market opened Nov. 7, the US Department of Labor reported that the US economy lost 240,000 jobs in October—the 10th consecutive month of cuts. The loss exceeded analysts' expectations of a 200,000-job loss. The unemployment rate jumped to 6.5% from 6.1% in September, surpassing Wall Street expectations of a 6.3% drop. That is the highest unemployment rate since March 1994. So far this year, the US has lost 1.2 million jobs.

Despite that bad news, the Dow Jones Industrial Average, Standard & Poor's 500 Index and the NASDAQ composite all rallied Nov. 7 during the first hour of trading as traders picked up stocks that have been beaten down in the markets this week. Since election day, the DJIA had lost 929 points, its biggest 2-day point decline ever, DJIA officials said. The percentage decline was 9.7%, the biggest 2-day drop since October 1987.

"After rebounding above $70/bbl earlier this week, crude has fallen sharply the past two trading sessions," said analysts in the Houston office of Raymond James & Associates Inc. "The reasons remain the same: fear of further demand destruction and a strengthening dollar. Oil is trading up slightly this morning. Looking at the energy stocks, the Oil Service Index declined another 6.8% yesterday and the S&P E&P 1500 was down 6.6%." Despite a bullish report of 12 bcf injection of gas into US underground storage in the week ended Oct. 31, RJA analysts said, "Gas prices still slid 4% [on Nov. 6] and are once again below $7/Mcf."

On Nov. 6, global markets were basically the same as the day before, "with heavy selling across asset classes and oil weighing on the commodity spectrum," said Olivier Jakob at Petromatrix, Zug, Switzerland. The European Central Bank cut rates as expected to 3.25% but hinted at more cuts in the future. And the Bank of England reduced its interest rates "much more than expected" to 3%.

Jakob reported, "From China to Europe, there are more talks and indications of refinery run cuts. The oil system needs to clean up its overhand of industrial feedstock (naphtha) and that needs to be done bottom-up with refinery run cuts. In normal market conditions, refinery cutting runs would translate [into] a build of crude stocks, but with the run for cash there is no strong desire to hold stocks, so there is little choice but for the Organization of Petroleum Exporting Countries to match any refinery run cuts with corresponding production cuts. Saudi Arabia should make its formal nominations for December over the weekend or early next week and will be a key indicator to watch."

Energy prices
The December contract for benchmark US light, sweet crudes fell $4.53 to $60.77/bbl Nov. 6 on the New York Mercantile Exchange, the lowest closing since Mar. 21, 2007. The January contract lost $4.54 to $61.47/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $4.53 to $60.77/bbl. Heating oil for December dropped 11.23¢ to $1.94/gal on NYMEX. The December contract for reformulated blend stock for oxygenate blending (RBOB) declined 8.84¢ $1.34/gal.

The December natural gas contract dropped 27¢ to $6.98/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 8¢ to $6.87/MMbtu.

In London, the December IPE contract for North Sea Brent was down $4.44 to $57.43/bbl. The November contract for gas oil continued to tumble, down $33 to $618.50/tonne.

The average price for OPEC's basket of 13 benchmark crudes fell $4.05 to $54.89/bbl on Nov. 6.

Contact Sam Fletcher at samf@ogjonline.com.

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