MARKET WATCH: Energy prices slip, market seeks signs from OPEC

Energy prices slipped Nov. 26 in anticipation of a possible production increase at the Dec. 5 OPEC meeting and fear that a slowing global economy will reduce demand for crude.

Nov 27th, 2007

Sam Fletcher
Senior Writer

HOUSTON, Nov. 27 -- Energy prices slipped Nov. 26 in anticipation of a possible production increase at the Dec. 5 meeting of the Organization of Petroleum Exporting Countries and fear that a slowing global economy will reduce demand for crude.

At their Sept. 11 meeting in Vienna, OPEC ministers voted to increase production by 500,000 b/d effective Nov. 1. At least half of that is now coming into the world market. "According to Saudi Arabian officials, Saudi Arabia is currently producing 9 million b/d, which compares to 8.75 million b/d in October," said analysts in the Houston office of Raymond James & Associates Inc.

OPEC officials, however, claim speculation and political tensions are driving up the price of crude, not lack of supply. In a Nov. 18 interview, Galo Chiroba, Ecuador's oil minister, expressed doubt there would be any proposals to change current production quotas at the upcoming meeting. Ecuador pulled out of OPEC in a 1992 disagreement over production and membership fees, but it rejoined the group—becoming the 13th member—at a meeting of OPEC heads of state Nov. 17.

The crude futures market "is a die-hard," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. "It had a relatively small correction but was still supported on the 5-day moving average and kept within the $96-99/bbl range." With forecasts of cold weather soon in the US, heating oil and natural gas futures are helping support oil prices. "But gasoline is showing more resistance and keeping the 3-2-1 refinery margin under pressure," Jakob said.

The market technically "still wants to test $100/bbl but has found so far strong resistance at $99/bbl and equities showing signs of indigestion at such level," Jakob said. He also noted that freight rates from the Persian Gulf are at "multimonth highs," which he sees as "a bearish flag" a week before OPEC's next meeting.

Energy prices
The January contract for benchmark US sweet, light crudes dropped 48¢ to $97.70/bbl Nov. 26 on the New York Mercantile Exchange. The February contract fell 37¢ to $96.76/bbl. On the US spot market, West Texas Intermediate was down 47¢ to $97.71/bbl. The December contract for reformulated blend stock for oxygenate blending (RBOB) declined by 2.56¢ to $2.44/gal on NYMEX. Heating oil for the same month, however, hit a record high of $2.73/gal in intraday trading before closing at $2.71/gal, up 0.24¢ for the day.

The December natural gas contract gained 2.3¢ to $7.72/MMbtu on NYMEX. On the US spot market at Henry Hub, La., gas jumped 74¢ to $7.53/MMbtu.

In London, the January IPE contract for North Sea Brent crude lost 44¢ to $95.32/bbl. Gas oil for December dropped $5.25 to $850.50/tonne.

The average price for OPEC' basket of 12 reference crudes gained 32¢ to $91.84/bbl on Nov. 26.

Contact Sam Fletcher at samf@ogjonline.com.

More in General Interest