MARKET WATCH: Crude futures price falls below $90/bbl

On Nov. 30 the front-month crude futures contract dropped below $90/bbl for the first time in a month amid conflicting concerns that OPEC will increase production at this week's meeting.

Sam Fletcher
Senior Writer

HOUSTON, Dec. 3 -- On Nov. 30 the front-month crude futures contract dropped below $90/bbl for the first time in a month on the New York market amid conflicting concerns that the Organization of Petroleum Exporting Countries will increase production at this week's meeting while a slowdown in US economic growth will decrease demand.

In the last full trading week before the Dec. 5 OPEC meeting, the contract for benchmark US light, sweet crudes "suffered in absolute terms its largest weekly change ever and of course the largest weekly decline ever, beating by exactly $1/bbl the collapse of March 2003 that followed confirmation of the strike on Iraq," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. The January US contract was down $9.47/bbl for the week while Brent was "relatively stronger" with a loss of $7.50/bbl.

Despite the sharp decrease in crude prices last week, the Societe Generale Group, Paris, reported, "As usual, the 5-year forward price has been more resilient, declining from $85-86/bbl to $83-84/bbl over the same timeframe. The backwardation has become significantly shallower, and in fact, the low point on the forward curve is now December 2010; beyond this date, the curve is in shallow contango. The flattening of the curve indicates growing uncertainty about how tight the near-term physical markets will be and about the direction of front-month prices."

That, said SGG analysts, "makes all the difference for OPEC," They added, "Our view is that OPEC will leave quotas unchanged this week."

Jakob said, however, "We need to keep in mind that [Saudi Arabia] surprised everybody by sponsoring a 500,000 b/d increase at the [Sept. 11] meeting. At the time West Texas Intermediate was trading between $75-78/bbl with a low of $68.60/bbl 2 weeks before the meeting, and by increasing production OPEC took the risk of a drop to $65/bbl." He said, "This time around WTI has been trading between $95-98/bbl with a low of $88.45/bbl a week before the meeting. We are still $20/bbl higher than the acceptable price levels set at the last meeting while the fear of economic recession is much stronger."

Energy prices
The January contract for benchmark US crudes dropped $2.30 to $88.71/bbl Nov. 30 on the New York Mercantile Exchange. The February contract lost $2.09 to $88.26/bbl. On the US spot market, WTI at Cushing, Okla., was down $2.30 to $88.72/bbl. Heating oil for December delivery declined 4.75¢ to $2.53/gal on NYMEX. The December contract for reformulated blend stock for oxygenate blending (RBOB) slipped 0.57¢ to $2.26/gal.

The January natural gas contract fell 15¢ to $7.30/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 9.5¢ to $7.28/MMbtu.

In London, the January IPE contract for North Sea Brent crude retreated $1.96 to $88.26/bbl. Gas oil for December plunged $36.50 to $792.75/tonne.

The average price for OPEC's basket of 12 reference crudes dropped $1.87 to $85.91/bbl on Nov. 30.

Contact Sam Fletcher at samf@ogjonline.com.

More in General Interest