MARKET WATCH: Oil price tops $94/bbl in biggest leap in 11 months

Dec. 13, 2007
Crude futures prices jumped more than $4 to top $94/bbl Dec. 12, the biggest one-day gain since Jan. 30 and the highest closing since Nov. 27 on the New York market.

Sam Fletcher
Senior Writer

HOUSTON, Dec. 13 -- Crude futures prices jumped more than $4 to top $94/bbl Dec. 12, the biggest one-day gain since Jan. 30 and the highest closing since Nov. 27 on the New York market, after the US Federal Reserve said it would make $24 billion available to the European Central Bank and Swiss National Bank to spur economic growth.

The Fed also plans four auctions—two this month—to increase US cash by as much as $40 billion.

Meanwhile, Goldman Sachs Group Inc., the world's largest securities firm, raised its 2008 oil price prediction to $95/bbl for benchmark US light, sweet crudes, up from $85/bbl previously, and said crude may trade as high as $105/bbl by the end of next year. Analysts figure higher investment costs and weaker demand will cause producers to curtail supply.

"One day after reacting very negatively to the Fed's decision to lower the discount rate by only 25 basis points, the market rocketed out of the gate yesterday on the news of a new Federal Reserve program to lend banks money," said analysts in the Houston office of Raymond James & Associates Inc. "While the broader markets slowly lost their excitement over the most recent Fed decision, the crude markets loved the news. Crude rose over $4/bbl (or 4.9%), marking its largest percentage gain in the last 11 months."

In other news Dec. 12, a segment of the Department of Energy reported another draw of US crude inventories. "Crude inventory levels have now fallen 18 of the last 23 weeks," said Raymond James analysts.

Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "The oil markets had one of the strongest days of the year, but it would be wrong to attribute it to the few stock draws in the weekly DOE statistics. Stocks of gasoline and distillates are now at par to the 2 previous years, overall demand is also at par, and crude oil stocks rebuilt in Petroleum Administration for Defense District 3 (PADD 3) [including the US Gulf Coast and confirming that last week's draw was due to fog disruption to shipping] and in Cushing, Okla. (PADD 2). The only sizeable draw was in PADD 5 crude oil but PADD 5 (the US West Coast, Alaska, and Hawaii) is not a price setter."

Jakob said, "Technically, the momentum indicators have turned positive but the move has been so violent that crude and products are already facing key resistances."

Elsewhere Dec. 12, ExxonMobil Corp. was repairing a leak on a reformer unit at its 349,000 b/d refinery in Beaumont, Tex., following a Dec. 11 fire when forced the refinery temporarily to reduce rates. Company officials said the incident will have minimal impact on production.

US inventories
The Energy Information Administration said Dec. 12 commercial US crude inventories dropped 700,000 bbl to 304.5 million bbl during the week ended Dec. 7. Gasoline stocks increased 1.6 million bbl to 202.2 million bbl during that same period. Distillate fuel inventories fell 800,000 bbl to 131.5 million bbl. Propane and propylene inventories decreased by 1.4 million bbl to 59.6 million bbl in that same week.

Imports of crude into the US increased by 689,000 b/d to 10.1 million b/d in that period. The input of crude into US refineries declined, however, down 172,000 b/d to 15.3 million b/d, with refineries operating at 88.8% of capacity. Gasoline production increased to 9.2 million b/d, but distillate fuel production fell to 4.2 million b/d.

Energy prices
The January crude contract for US light, sweet crudes climbed as high as $94.85/bbl Dec. 12 on the New York Mercantile Exchange before closing at $94.39/bbl, up $4.37 for the day. The February contract jumped by $4.36 to $94.28/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $4.37 to $94.40/bbl. The January heating oil contract escalated by 12.02¢ to $2.64/gal on NYMEX. The January contract for reformulated blend stock for oxygenate blending (RBOB) rose 12.14¢ to $2.41/gal.

The January natural gas contract bumped up 32.3¢ to $7.41/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 13¢ to $7.22/MMbtu. EIA reported Dec. 13 the withdrawal of 146 bcf of gas from US underground natural storage during the week ended Dec. 7. That compares with withdrawals of 88 bcf of gas the prior week and 168 bcf in the same period last year. The latest withdrawal was well above the consensus of Wall Street analysts. US gas storage now stands at 3.29 tcf, up 32 bcf from year-ago levels and 259 bcf above the 5-year average.

In London, the January IPE contract for North Sea Brent shot up $4.03 to $94.02/bbl. Gas oil for December remained unchanged at $861.50/tonne.

The average price of the Organization of Petroleum Exporting Countries' basket of 12 benchmark crudes increased $2.07 to $86.71/bbl on Dec. 12.

Contact Sam Fletcher at [email protected].