MARKET WATCH: Pessimism pulls down energy prices

Sam Fletcher
Senior Writer

HOUSTON, Jan. 19 -- The soon-to-expire February contract for benchmark crudes rebounded slightly on Jan. 16, but other energy prices continued to spiral out of control, weighed down by general market pessimism over global demand destruction in a faltering economy.

General erosion of futures prices for the benchmark US light, sweet crudes continued as the February contract, due to expire Jan. 20, lost a total $4.95/bbl over five trading sessions last week. The March contract dropped $3.80/bbl in the same period. "The picture was more balanced in other petroleum commodities with North Sea Brent for March down only 67¢/bbl," said Olivier Jakob at Petromatrix, Zug, Switzerland.

The February heating oil contract lost 60¢/bbl in the same week, but the contract for reformulated blend stock for oxygenate blending (RBOB) gained 2.46¢/bbl. "Natural gas was, however, down 13%," Jakob reported.

Amid multiple indicators that oil demand and price will likely belly-flop this year, the US Energy Information Administration last week cut its average 2009 price forecast another 15% to $43.25/bbl. In intraday trading Jan. 15, the February crude contract traded as low as $33.20/bbl on the New York Mercantile Exchange—"just 80¢/bbl higher than the multiyear low set 4 weeks ago," said Pritchard Capital analysts—before recovering to close at $35.40/bbl that day, its lowest finish in a month (OGJ Online, Jan. 16, 2009).

Like most soothsayers, EIA has a poor record for accurate price predictions. Last July when the US driving season was at its peak and oil prices were soaring, it forecast the US spot price for West Texas Intermediate would average $127/bbl for 2008 and $133/bbl in 2009, up from an average $72/bbl for 2007.

InflationData.com, published by Financial Trend Forecaster, said oil prices adjusted for inflation averaged an estimated $99.65/bbl in 2008 and $64.93/bbl in 2007. The annual average price "will conceivably be much lower in 2009," the web site reported. For 2008, it said, "On an annual average basis, prices were very close to 1979 but slightly below; but on a monthly inflation adjusted basis 2008 prices exceeded 1979 prices but for a shorter duration."

In the last major oil boom in 1979-80, "the highest monthly average occurred in December 1979 while the highest annual high occurred in 1980. Which means prices spiked higher in late 1979 and then dropped slightly but overall remained at higher levels throughout 1980," the website reported. Adjusted for inflation in November 2008 dollars, the 1979 $38/bbl peak was "the equivalent of paying $105.24/bbl today," it said.

The report noted the retreat from the 1979 price peak "took until 1986 (7 years) to fall as much as we lost in the last 6 months."

Energy prices
The February contract for benchmark US light, sweet crudes rebounded by $1.11 to $36.51/bbl Jan. 16 on NYMEX. However, the March contract lost 97¢ to $42.57/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.11 to $36.51/bbl. Heating oil for February dropped 1.37¢ to $1.47/gal on NYMEX. RBOB for the same month dipped 0.7¢ but its closing price was essentially unchanged at $1.17/gal.

The February natural gas contract was down 4.2¢ to $4.80/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 18¢ to $5.09/MMbtu.

In London, the March IPE contract for North Sea Brent crude lost $1.11 to $46.57/bbl. However, gas oil for February climbed $5.75 to $463.50/tonne.

The average price for OPEC's basket of 12 reference crudes gained $1.27 to $42.17/bbl Jan. 16. Jakob reported the Mexican basket of crudes averaged $36.89/bbl, while Russian oil FOB at Primorsk was priced at $28.54/bbl after export tax.

So far this year, OPEC's basket price has averaged $42.22/bbl, down from an average $94.45/bbl for all of 2008.

NYMEX closed regular trading Jan. 19 in observance of the US holiday honoring civil rights leader Martin Luther King Jr., electronic trading continued, however.

Contact Sam Fletcher at [email protected].