MARKET WATCH: Market fundamentals reduce energy prices

Crude prices continued to decline Oct. 1 on the New York market as traders worried that the current supply and demand factors can't support the high prices from the September rally.

Sam Fletcher
Senior Writer

HOUSTON, Oct. 2 -- Crude prices continued to decline Oct. 1 on the New York market as traders worried that the current supply and demand factors can't support the high prices from the September rally.

Front-month crude prices fell below the key psychological level of $80/bbl in premarket trading Sept. 2 on the New York Mercantile Exchange. "Traders worry about the lack of crude demand as refineries continue to reduce their utilization for seasonal maintenance. As this trend continues, US oil demand is expected to recede further," explained analysts in the Houston office of Raymond James & Associates Inc.

"Hot weather on both coasts, and particularly in the New England area, should help boost natural gas demand in the immediate future. While this has supported gas prices, we continue to believe that ample supplies will leave us approaching 3.5 tcf in storage as we head into winter," the analysts said.

The Dow Jones Industrial Average rebounded to a new high Oct. 1. However, Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, reported: "Equities trading again at record highs were not enough to bolster confidence in the oil markets that were capped by pressure from the products. The large speculative funds remain counter-seasonally long in [reformulated blend stock for oxygenate blending] (RBOB) gasoline, and with the lack of hurricane destruction on refining facilities, the petroleum cracks are coming under serious pressure. The November RBOB crack has now fallen under $3/bbl and with heating oil also under pressure, it is the whole 3-2-1 refinery margin that continues to erode and trades below $6/bbl (November)."

Energy prices
The November contract for benchmark US sweet, light crudes traded as high as $82.02/bbl in intraday trading Oct. 1 before closing at $80.24/bbl, down $1.42 for the day on NYMEX. The December contract lost $1.20 to $79.28/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.42 to $80.25/bbl. Heating oil for November delivery lost 4.49¢ to $2.18/gal on NYMEX. The November contract for RBOB fell 5.98¢ to $1.98/gal.

The November natural gas contract, however, escalated by 18¢ to $7.05/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped by 27.5¢ to $6.46/MMbtu.

In London, the November IPE contract for North Sea Brent crude lost $1.53 to $77.64/bbl. Gas oil for October fell $24 to $688.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped $1.51 to $75.92/bbl on Oct. 1.

Contact Sam Fletcher at samf@ogjonline.com.

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