MARKET WATCH: Crude price hits new intraday high

The front-month crude futures price fell Nov. 1 on the New York market, but not before setting a new intraday price record of $96.24/bbl.

Nov 2nd, 2007

Sam Fletcher
Senior Writer

HOUSTON, Nov. 2 -- The front-month crude futures price fell Nov. 1 on the New York market, but not before setting a new intraday price record of $96.24/bbl.

"Worries that the Federal Reserve System will no longer cut [interest] rates this year sparked a sell-off," said analysts in the Houston office of Raymond James & Associates Inc. But the oil market is expected to remain strong "with concerns over winter demand outpacing supply," they said.

Indeed, the front-month crude contract was climbing toward $95/bbl in early trading Nov. 2 on the New York Mercantile Exchange, after Secretary of State Condoleezza Rice assured Turkish officials that Kurdish rebels in northern Iraq are a "common threat." She said the US would help Turkey fight them. Earlier concerns about possible disruption of crude production and movement as a result of conflict with Kurdish rebels helped boost oil prices.

The US dollar hit a record low against the euro Oct. 31 after the Federal Open Market Committee cut the federal funds rate (the rate that commercial banks charge on overnight loans among themselves) by 0.25% to 4.5%. But on Nov. 1, the value of the dollar improved against the euro. Oil usually moves in the opposite market direction from the dollar, since a stronger dollar reduces the appeal of commodities as a hedge against inflation.

The oil market was "in consolidation mode" Nov. 1 following the price fly-up in the previous session. "Equities were under severe pressure, but that was not enough to significantly impact yet the rise of oil futures," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

Raymond James analysts noted, "Crude inventories are the lowest in 2 years and fundamentals remain strong, with recent comments from an Oman minister suggesting that all oil-producing nations, except Saudi Arabia, are at full [output] capacity. Thus, the lack of spare capacity remains a major factor in the record crude price environment."

In other news Nov. 2, Tropical Storm Noel was upgraded to hurricane strength and is expected to approach the East Coast where it might temporary disrupt crude imports into the US.

Energy prices
The December crude contract for US light, sweet crudes lost $1.04 to close at $93.49/bbl Nov. 1 on NYMEX. The January contract dropped 82¢ to $92.45/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.05 to $93.49/bbl. Heating oil for November delivery slipped 1.7¢ to $2.51/gal on NYMEX. However, the November contract for reformulated blend stock for oxygenate blending (RBOB) inched up 0.62¢ to $2.34/gal. "On a relative value basis, RBOB gasoline remained strong and led to an improvement of the crack," Jakob said.

The December natural gas contract escalated by 30.7¢ to $8.64/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dipped 1.5¢ to $7.15/MMbtu. "Natural gas inventories surpassed 3.5 tcf for the first time yesterday. Investors shook off this bearish data point, as natural gas prices continue to be supported by record crude prices and forecasts for an upcoming cold front," Raymond James analysts said.

In London, the December IPE contract for North Sea Brent crude lost 91¢ to $89.72/bbl. Gas oil for November increased $1 to $788/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 benchmark crudes gained $2.77 to $87.61/bbl on Nov. 1.

Contact Sam Fletcher at samf@ogjonline.com.

More in General Interest