MARKET WATCH: Natural gas, oil prices continue to fall

Despite forecasts of colder weather, natural gas prices fell 5.2% in the New York market Dec. 4 following the report of a smaller-than-expected withdrawal from US underground storage.

Sam Fletcher
Senior Writer

HOUSTON, Dec. 5 -- Despite forecasts of colder weather, natural gas prices fell 5.2% in the New York market Dec. 4 following the report of a smaller-than-expected withdrawal from US underground storage.

"Natural gas broke the support lines and carried with it the rest of the commodity complex," said Olivier Jakob at Petromatrix, Zug, Switzerland. The front-month crude contract fell for the sixth consecutive NYMEX session, down 6.7% to the lowest closing since January 2005, as the worldwide economic crisis deepened.

In New Orleans, analysts at Pritchard Capital Partners LLC noted simultaneous recessions in the US, the UK, Europe, and Japan for the first time since World War II. They said, "Even the impending cold weather cannot keep gas prices propped up as gas is trading below $6/Mcf" on Dec. 5.

Shortly before regular trading opened Dec. 5 in the New York Mercantile Exchange, the US Department of Labor reported 533,000 jobs were terminated in November, the most in 34 years. That pushed the US unemployment rate to a 15-year high of 6.7%, up from 6.5% in October. Moreover, government officials reported 422,000 people have left the work force, having exhausted federal unemployment benefits and abandoned the hunt for jobs.

The Bank of England and the European Central Bank further reduced interest rates Dec. 5 in an effort to resuscitate the ailing economy.

Jakob said, "The dollar index for now fails to rise in line with the drop in oil prices, which means that non-dollar consumers will get more of the oil price drop and OPEC relatively less." He said, "The problem is that, in the current oil price correction, money is leaving the wallet of OPEC but not necessarily going into the pocket of the consumer."

In other news, the Dec. 4 fire at Royal Dutch Shell PLC's 412,000 b/d Pernis refinery in the Netherlands has "failed to bring much support to the European gasoline crack," Jakob said. That refinery is the largest in Europe. Initial reports said the fire was at a pipeline carrying diesel and that a catalytic cracker near the fire was shut down for safety reasons. It was also reported the FCC unit was not damaged and was expected to be back in operation within a few days (OGJ Online, Dec. 4, 2008). However, Jakob said Dec. 5: "It is not fully clear as to what units were affected (FCC or gas oil)."

Energy prices
The January contract for benchmark US light, sweet crudes dropped $3.12 to $43.67/bbl Dec. 4 on NYMEX. The February contract fell $3.11 to $45.21/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $3.12 to $43.67/bbl. Heating oil for January delivery lost 7.49¢ to $1.51/gal on NYMEX. The January contract for reformulated blend stock for oxygenate blending (RBOB) lost 7.2¢ to 97¢/gal.

Natural gas for the same month fell 33¢ to $6.02/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 6¢ to $6.55/MMbtu.

In London, the January IPE contract for North Sea Brent crude was down $3.16 to $42.28/bbl. The December gas oil contract had a slight rebound, up $3.25 to $480.25/tonne.

The Organization of Petroleum Exporting Countries' offices in Vienna are closed Dec. 5 for a religious festival.

Contact Sam Fletcher at samf@ogjonline.com.

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