MARKET WATCH: Crude prices spiral down toward 4-year low

Sam Fletcher
Senior Writer

HOUSTON, Dec. 4 -- Crude futures prices declined for the fifth consecutive session Dec. 3 to a near 4-year low due to market fears that energy demand is sinking in the morass of an international economic crisis.

"You know it's a tough market when not even a bullish inventory report from the Department of Energy can push oil in the right direction," said analysts at Raymond James & Associates Inc. in Houston. "Market liquidations and demand degradation continue to weigh on short-term oil prices. While it is anyone's guess in the short term, we continue to think that eventual improvements on the demand side and additional OPEC cuts will turn crude prices around by the second half of 2009."

DOE's Energy Information Administration reported commercial US crude inventories decreased by 400,000 bbl to 320.4 million bbl in the week ended Nov. 28. Gasoline inventories fell 1.6 million bbl to 198.9 million bbl in the same period. Distillate fuel inventories dropped 1.7 million bbl to 125 million bbl, below average for the time of year (OGJ Online, Dec. 3, 2008).

Meanwhile, the ADP National Employment Report released Dec. 3 showed 250,000 US jobs were terminated in November, the biggest job loss in 7 years. On Dec. 4, the US Department of Labor said 509,000 newly laid-off workers registered for unemployment benefits last week, down by 21,000 from the previous week. However, the total number of people drawing unemployment benefits increased to 4.09 million last week, a 26-year high.

In other news, there was a fire Dec. 4 at a pipeline carrying heavy diesel oil in Royal Dutch Shell PLC's 412,000 b/d Pernis refinery in the Netherlands, but the company said it was quickly brought under control, although a part of the plant was shut down. That refinery is the largest in Europe. Reuters news service quoted other sources as saying a catalytic cracker near the fire was shut down for safety reasons but was not damaged and should be back in operation within a few days.

As of midday Dec. 3, the US Minerals Management Service said 51 of the 694 manned production platforms in the Gulf of Mexico still were not back in operation after being evacuated for Hurricanes Gustav and Ike. MMS said 14.9% of the oil and 20.9% of the natural gas normally produced from federal leases in the gulf are still shut in.

Energy prices
The January contract for benchmark US sweet, light crudes declined 17¢ to $46.79/bbl Dec. 3—the lowest closing since February 2005 on the New York Mercantile Exchange. The February contract dipped 11¢ to $48.32/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 17¢ to $46.79/bbl. January heating oil inched up 0.08¢ to close virtually unchanged at $1.58/gal on NYMEX. The January contract for reformulated blend stock for oxygenate blending (RBOB) declined 1.68¢ to $1.04/gal.

Natural gas for the same month was down 7.7¢ to $6.35/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 19.5¢ to $6.49/MMbtu. EIA reported the withdrawal of 64 bcf of natural gas from US underground storage in the week ended Nov. 28. That left 3.4 tcf of working gas in storage, 107 bcf less than last year at this time but 69 bcf above the 5-year average.

In London, the January IPE contract for North Sea Brent crude was unchanged at $45.40/bbl. Gas oil for December dropped $11.50 to $477/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes lost 85¢ to $40.75/bbl. The OPEC Secretariat in Vienna will be closed Dec. 5 for the Muslim religious festival of Eid Al-Adha and on Dec. 8 for the Catholic celebration of Immaculate Conception of Mary.

Contact Sam Fletcher at samf@ogjonline.com.