MARKET WATCH: Market speculation undercuts energy prices

Crude prices fell more than $3/bbl Nov. 27 on the New York futures market amid speculation that an economic recession could reduce global demand for crude.

Sam Fletcher
Senior Writer

HOUSTON, Nov. 28 -- Crude prices fell more than $3/bbl Nov. 27 on the New York futures market amid speculation that an economic recession could reduce global demand for crude and that the Organization of Petroleum Exporting Countries may again increase production at their Dec. 5 meeting.

Saudi Arabia Oil Minister Ali Al-Naimi recently said his country is producing 9 million b/d of crude, up from October production of 8.75 million b/d, as a result of OPEC's Sept. 11 decision to increase production by 500,000 b/d beginning Nov. 1.

Several representatives from member OPEC nations have said repeatedly that political tensions and speculation have driven up oil prices this year, not the lack of crude. But more recently there has developed a "pattern of sound bites on a 500,000-750,000 b/d increase" that are fueling market expectations, said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

An additional 500,000 b/d of OPEC crude on top of the November increase would reduce the market impact of potential disruptions such as sabotage of Iraq's pipeline to Turkey or civil unrest in Nigeria, Jakob said. "Saudi Arabia is the main country with spare capacity so they would be back to micromanaging the market. If an additional 500,000 b/d was to materialize it would take some of the risk premium off [of crude prices] but will maintain the premium of sweet to sour crude," he said.

US inventories
The Energy Information Administration reported Nov. 28 commercial inventories of US benchmark light, sweet crudes dropped 400,000 bbl to 313.2 million bbl during the week ended Nov. 23. That was a smaller decline than Wall Street analysts' consensus of 500,000 bbl. Gasoline stocks gained 1.4 million bbl to 196.6 million bbl during the Thanksgiving week, still below average for that time of year. Analysts had expected only half as large a build at 700,000 bbl of gasoline. Distillate fuel inventories decreased by 100,000 bbl to 130.9 million bbl; the consensus was for a loss of 1 million bbl. Propane and propylene stocks increased by 300,000 bbl to 61.5 million bbl during the same period.

Imports of crude into the US increased by 543,000 b/d to 10.4 million b/d last week. Gasoline imports fell to 835,000 b/d from 1.1 million b/d the previous week. Distillate fuel imports dipped to 203,000 b/d from 267,000 b/d. The input of crude into US refineries increased by 573,000 b/d to 15.5 million b/d in the week ended Nov. 23, with refineries operating at 89.4% of capacity, up from 87% the prior week. Gasoline production increased to 9 million b/d, while distillate fuel production rose to 4.3 million b/d.

Energy prices
The January contract for benchmark US crudes fell $3.28 to $94.42/bbl Nov. 27 on the New York Mercantile Exchange; it was the biggest single-day loss in 2 weeks. The February contract dropped $3.13 to $93.63/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $3.28 to $94.43/bbl. The December contract for reformulated blend stock for oxygenate blending (RBOB) lost 6.84¢ to $2.37/gal on NYMEX. Heating oil for the same month declined 5.32¢ to $2.65/gal.

Predictions of warm weather following the recent cold snap caused the December natural gas contract to fall 16.6¢ to $7.56/MMbtu. On the US spot market, gas at Henry Hub, La., dropped 4¢ to $7.49/MMbtu.

In London, the January IPE contract for North Sea Brent crude lost $2.80 to $92.52/bbl. The December gas oil contract fell $7.50 to $843/tonne.

The average price for OPEC's basket of 12 reference crudes dropped $1.57 to $90.27/bbl on Nov. 27.

Contact Sam Fletcher at samf@ogjonline.com.

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