MARKET WATCH: Energy prices rebound in optimistic markets

The front-month benchmark US crude contract jumped back above $80/bbl Oct. 13 in the New York market and may be headed higher as US and European government efforts to revive the troubled banking sector spurred a huge rally in equity markets.

Sam Fletcher
Senior Writer

HOUSTON, Oct. 14 -- The front-month benchmark US crude contract jumped back above $80/bbl Oct. 13 in the New York market and may be headed higher as US and European government efforts to revive the troubled banking sector spurred a huge rally in equity markets.

The Dow Jones Industrial Average achieved its largest 1-day gain since 1933 on Oct. 13, up 11% in its fifth largest percentage gain ever.

"Sure, West Texas Intermediate closed the day $3.50/bbl higher, but most of these gains were actually done in the aftermarket hours of Oct. 10," said Olivier Jakob at Petromatrix, Zug, Switzerland. "Hence, crude oil did not benefit yesterday from the renewed investment optimism. Price action across the commodity spectrum while positive was also no match to the gains on equities." He said, "Clearly, the global investor is finding more oversold buying opportunities in equities than in commodities."

In Houston, analysts at Raymond James & Associates Inc. said Oct. 14, "Energy commodities increased as concerns of a pending global financial crisis eased. We appear to be heading toward another positive day for energy stocks as the broader market and energy commodities are trading higher premarket."

Jakob said, "Commodity investments have suffered from margin calls in the Wall Street meltdown, but there are no signs yet that they are greatly benefiting from the Wall Street revival." He said, "The government interventions are probably a good step in trying to unlock the credit freeze, but crude oil will gain only when there is unlocking of the demand freeze, and that will be apparent when products are able to lead again and improve on a crack basis. The cracks did improve slightly and mostly on heating oil through a pull on diesel demand in the Midwest but the reformulated blend stock for oxygenate blending (RBOB) crack is still stuck in negative territory."

Meanwhile, analysts at Goldman Sachs Group Inc. cut their oil price forecast to $70/bbl by yearend, down from $115/bbl previously. They now expect oil to be priced $107/bbl at yearend 2009, vs. an earlier prediction of $125/bbl. However, they expect crude prices to average $86/bbl through 2009, down from $123/bbl.

Energy prices
The November contract for benchmark US sweet, light crudes traded as high as $82.52/bbl Oct. 13 before closing at $81.19/bbl, up $3.49 for the day on the New York Mercantile Exchange. The December contract gained $3.69 to $81.68/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $3.49 to $81.19/bbl. Heating oil for November delivery escalated 13.1¢ to $2.34/gal on NYMEX. The November RBOB contract increased 11.06¢ to $1.92/gal.

Natural gas for the same month bumped up 15.3¢ to $6.69/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 10¢ to $6.62/MMbtu.

In London, the November IPE contract for North Sea Brent crude increased $3.37 to $77.46/bbl. The November gas oil contract jumped $22.50 to $746.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes declined, however, down 71¢ to $71.96/bbl Oct. 13.

Contact Sam Fletcher at samf@ogjonline.com.

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