MARKET WATCH: Crude prices retreat again

The New York Mercantile Exchange broke out of its recent seesaw pattern with front-month benchmark crude trading down Nov. 8 for the second consecutive session.

Nov 9th, 2007

Sam Fletcher
Senior Writer

HOUSTON, Nov. 9 -- The New York Mercantile Exchange broke out of its recent seesaw pattern with front-month benchmark crude trading down Nov. 8 for the second consecutive session.

Crude prices increased earlier in the session with US oil inventories at a 2-year low and reports that storms shut in as much as 540,000 boe/d of production in the North Sea (OGJ Online, Nov. 9, 2007). In other news, Valero Energy Corp.'s 325,000 b/d refinery in Port Arthur, Tex., may be down 2-4 weeks for repairs after a Nov. 8 fire in a hydrotreater.

"A fire at a Valero refinery in Texas, one day after a fire at [Motiva Enterprises LLC's] refinery in Lousiana is making for firmer product cracks and time spreads," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

"In Europe the main disruption fear is coming from a very significant storm that has developed in the North Sea," Jakob said. "The focus has been on the precautionary shutdowns of crude oil platforms and early indications are that they have mostly not suffered any structural damage," he said, adding that he is "more worried about the flood threat in the region of the Netherlands."

He said, "The storm surge barriers around Rotterdam have been closed for the first time since their construction, and we will stay cautious until it is clear that the refinery assets in the region have not suffered any flooding damages."

However, crude prices fell later in that session after US Federal Reserve Chairman Ben Bernanke told the Joint Economic Committee of Congress the US economy risks both a sharp slowdown due to contraction of its housing market and an inflationary surge from higher crude prices and a weaker dollar.

Jakob said, "Disruptions or fears of disruptions are always a legitimate reason to buy the market, but we have reached such a price level that any attempts higher are now met with almost immediate selling in the equity markets. This results in a stalling [crude] market."

However, $100/bbl crude "is still within a 2-day reach under current daily volatility," Jakob said Nov. 9. "Today's closing will be crucial to assess if the $100/bbl call options can still remain a trigger objective for [Nov. 13]. The main capping factor will remain the resistance induced by the weakness of the global equity markets," he said.

In their Houston office, analysts for Raymond James & Associates Inc. said the US government partially offset other bearish news by announcing it would begin filling the Strategic Petroleum Reserve by 70,000 b/d, effectively replacing reserves lost during Hurricane Katrina in 2005.

Energy prices
The December contract for benchmark US light, sweet crudes dropped 91¢ to $95.46/bbl Nov. 8 on NYMEX. The January contract fell 94¢ to $94.66/bbl. On the US spot market, West Texas Intermediate was down 91¢ to $95.47/bbl. Heating oil for December delivery declined 1.17¢ to $2.61/gal on NYMEX. The December contract for reformulated blend stock for oxygenate blending (RBOB) dipped by 0.3¢ to $2.44/gal.

The December natural gas contract gained 8.9¢ to $7.71/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., fell 36¢ to $6.92/MMbtu.

In London, the December IPE contract for North Sea Brent crude fell 45¢ to $92.79/bbl. The November gas oil contract advanced $3.75 to $835.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was unchanged at $90.71/bbl on Nov. 8.

Contact Sam Fletcher at samf@ogjonline.com.

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