MARKET WATCH: Crude, gas prices continue to slide

Crude and natural gas prices continued to fall Jan. 9 for the fourth straight session on the New York futures market, with oil dipping below $40/bbl in intraday trading for the first time this year.

Sam Fletcher
Senior Writer

HOUSTON, Jan. 12 -- Crude and natural gas prices continued to fall Jan. 9 for the fourth straight session on the New York futures market, with crude dipping below $40/bbl in intraday trading for the first time this year under pressure from the strengthening dollar and fear that demand destruction will outpace supply reductions by the Organization of Petroleum Exporting Countries.

Oil prices were down 12% in the week ended Jan. 9—the biggest percentage drop in 5 weeks—as the US Department of Labor reported the termination of 2.58 million US jobs during 2008, the most since World War II. That included the loss of 524,000 jobs during December. Moreover, the US Department of Energy said US crude inventories increased in 13 of the past 15 weeks as the economy slowed.

Meanwhile, Saudi Arabia said it will cut crude exports to Japan and Taiwan by 10% in February, putting that producer below its official quota of 7.7 million b/d and down from exports of 8.4 million b/d in December. According to analysts at Pritchard Capital Partners LLC, New Orleans, Iran plans to reduce shipments by 14% in February, while Kuwait is to cut exports 5% starting Jan. 22. Qatar and the UAE also have given notice of pending production cuts through February.

In Houston, analysts at Raymond James & Associates Inc. reported crude prices slipped lower in premarket trading Jan. 12. A 7.2% US unemployment rate and anticipation of weak corporate earnings reports later this month are undercutting demand forecasts, they said.

"While the recession is dominating short-term prices, geopolitical factors such as this weekend's announcement from Saudi Arabia to cut oil output by 300,000 b/d below its target may lend support in the long term," Raymond James analysts said. "In the global natural gas market, the dispute between Russia and the Ukraine appears to be headed toward a resolution after gas supplies were cut off to much of Europe for nearly a week."

Price volatility
In the first full week of commodity trading in 2009, West Texas Intermediate reversed most of its price gains from the last week of 2008, trading in a wide $10/bbl range, said Olivier Jakob at Petromatrix, Zug, Switzerland. "During the week, WTI lost $5.98/bbl, but losses on [North Sea] Brent were shallower at $2.49/bbl. Heating oil gained 30¢/bbl on the week, and reformulated blend stock for oxygenate blending (RBOB) was flat. Natural gas lost 7.1%. The OPEC basket is at $41.92/bbl, the Mexican basket at $36.31/bbl and Russian FOB Primorsk after export tax is at $26.12/bbl."

Jakob reported, "The average volume trading in crude oil futures during 2008 made a new record. If we bring the annual volume traded in crude oil futures to a barrels per day basis, then in 1995 a volume corresponding to the daily world production was traded each day on the futures exchanges. In 2000 the volume trading on futures was double the world production. That jumped to three times over in 2005, and in 2008 it was close to eight times the daily world production of crude oil that was traded each day in crude oil futures. This jump in volume has also brought a jump in volatility and is an input that needs to be taken in consideration when making a price forecast, or comparing current prices to history."

Energy prices
The February contract for benchmark US light, sweet crudes dropped 87¢ to close at $40.83/bbl Jan. 9 on the New York Mercantile Exchange. The March contract gave up 44¢ to $46.07/bbl. On the US spot market, WTI at Cushing, Okla., was down 87¢ to $40.83/bbl. Heating oil for February lost 3.19¢ to $1.49/gal on NYMEX. The RBOB contract for the same month declined 2.3¢ to $1.11/gal.

The February natural gas contract fell 6.7¢ to $5.52/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 24.5¢ to $5.59/MMbtu.

In London, the February IPE contract for North Sea Brent crude was down 25¢ to $44.42/bbl. Gas oil for January delivery dropped $23.50 to $454.75/tonne

The average price for OPEC's basket of 12 reference crudes declined by 21¢ to $41.92/bbl. So far this year, OPEC's basket price has averaged $43.31/bbl, down from an average $94.45/bbl for all of 2008 and a 2007 average of $69.08/bbl.

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