Sam Fletcher
Senior Writer
HOUSTON, Jan. 9 -- Crude prices slipped lower Jan. 8 while natural gas broke its 5-week downward spiral in the New York market, both because of weather outlooks.
Crude prices rallied in early trading on the New York Mercantile Exchange on reports that ministers of the Organization of Petroleum Exporting Countries may be considering a third cutback of production in recent months. But the rally failed to hold in the face of surplus heating oil supplies because of warm weather in key markets so far this winter. The February contract for benchmark sweet, light crudes traded at $55.10-57.72/bbl on NYMEX before closing at $56.09/bbl, down 22¢ for the day.
"Despite its claims otherwise, it is evident that OPEC is trying to defend a price rather than a supply and demand picture. It starts to talk about cuts as soon as the price approaches $55/bbl but fails to act as soon as it approaches $60/bbl," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.
"The problem is that the price of crude oil remains well entrenched in a range since early October, and the tests of the lower bands are as frequent as the tests of the higher band and results in having OPEC to declare too many cuts for as many failures to implement," Jakob said. He noted that the 10 OPEC members other than Iraq have implemented only half of the 1.2 million b/d production cut that they agreed to in October, which was supposed to be effective Nov. 1. They have since agreed to a second reduction of 500,000 b/d effective Feb. 1. Announcing yet another cut before the first two are implemented "would put OPEC credibility at further risk," Jakob said.
"So far only Saudi Arabia is showing its implementation resolve, and it feels that the rest of OPEC will only start to worry about implementation once we approach $50/bbl [for benchmark US crude on NYMEX.] Still, by calling for additional meetings the OPEC cheaters are hoping that Saudi Arabia will continue to pay for the rest by agreeing to more cuts," he said.
Meanwhile, some of the investment funds whose speculation drove oil prices up last year have accelerated the recent fall in prices as they sell off futures contracts. "The speculative funds have now the opportunity to push OPEC in a corner," Jakob said. "On a further flat price fall, it is likely that OPEC would announce further cuts, but the chances are now higher that it would be ignored by the market since the previous ones (apart from Saudi Arabia) were mostly not implemented. Furthermore, it would need some further time for verification, a time that will play into the speculators hands."
Other energy prices
The March crude contract slipped by 3¢ to $57.36/bbl Jan. 8 on NYMEX. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 22¢ to $56.10/bbl. Heating oil for February delivery dipped by 0.87¢ to $1.56/gal on NYMEX. The February contract for reformulated blendstock for oxygenate blending (RBOB) dropped 2.46¢ to $1.47/gal.
The February natural gas contract escalated by 19.4¢ to $6.38/MMbtu on NYMEX. On the US spot market, natural gas at Henry Hub, La., jumped by 56¢ to $6.06/MMbtu. "Emergence of cold weather forecasts across the US should drive prices modestly higher," said analysts in the Houston office of Raymond James & Associates.
In London, the February IPE contract for North Sea Brent crude lost 4¢ to $55.60/bbl. The January contract for gas oil gained $2 to $488.75/tonne.
The average price for OPEC's basket of 11 benchmark crudes shot up by 56¢ to $51.82/bbl.
Contact Sam Fletcher at [email protected].