MARKET WATCH: Energy prices continue to crumble

Energy prices continued to crumble Oct. 23 amid indications that OPEC is boosting oil production to meet the Nov. 1 increase of 500,000 b/d that it agreed to Sept. 11 in Vienna.

Sam Fletcher
Senior Writer

HOUSTON, Oct. 24 -- Energy prices continued to crumble Oct. 23 amid indications that the Organization of Petroleum Exporting Countries is boosting oil production to meet the Nov. 1 increase of 500,000 b/d that the group agreed to Sept. 11 in Vienna.

"The producing group has begun increasing October supplies in anticipation of Nov. 1," said analysts in the Houston office of Raymond James & Associates Inc. "Further driving oil prices down is the anticipation of an [US] inventory build," they said.

The second high-level energy roundtable between China and OPEC ministers took place Oct. 24 in Beijing. Officials from both sides announced only that they had agreed to a third energy roundtable next year at the OPEC Secretariat in Vienna.

However, Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "The Chinese economic planning agency has been reported complaining to OPEC that prices are too high, and the Chinese voice has probably these days a greater weight than the same complaints emanating from the head of the US Department of Energy. Coincidently, OPEC sources are providing more sound bites of a possible supplemental increase [in crude supplies.]"

US inventories
The Energy Information Administration said Oct. 24 that commercial US crude inventories fell 5.3 million bbl to 316.6 million bbl in the week ended Oct. 19, vs. expectations among Wall Street analysts of an 800,000 build. Gasoline inventories dropped 2 million bbl to 193.8 million bbl, while distillate fuel inventories decreased by 1.8 million bbl to 134.5 million bbl. The previous consensus among Wall Street analysts was for increases of 300,000 bbl in both categories. Propane and propylene inventories increased by 600,000 to 61 million bbl last week.

Imports of crude into the US fell more than 1.3 million b/d to 9.1 million b/d during that same week. The input of crude into US refineries dropped 183,000 b/d to 14.9 million b/d with refineries operating at 87.1% capacity, down from 87.3% capacity the previous week. Nevertheless, gasoline production rose to nearly 9 million b/d while distillate fuel production fell to 3.9 million b/d.

Energy prices
The new front-month December contract and the January contract both lost 75¢ to $85.27/bbl and $84.46/bbl, respectively, Oct. 23 on the New York Mercantile Exchange. On the US spot market, West Texas Intermediate was down $1.09 to $86.48/bbl. The November contract for reformulated blend stock for oxygenate blending (RBOB) dropped 2.45¢ to $2.11/gal on NYMEX. Heating oil for the same month declined by 1.11¢ to $2.30/gal.

The November natural gas contract lost 13¢ to $6.76/MMbtu on NYMEX on forecasts of warm weather. On the US spot market, gas at Henry Hub, La., fell 13.5¢ to $6.36/MMbtu. "Without the 'storm premium' built in during the Atlantic hurricane season, natural gas prices are likely to decline with high supplies and mild near-term weather forecasts reducing demand for gas," said Raymond James analysts.

In London, the December IPE contract for North Sea Brent crude was down 42¢ to $82.85/bbl. Gas oil for November dropped $3.25 to $719/tonne.

The average price for OPEC's basket of 12 reference crudes dipped by 12¢ to $80.11/bbl on Oct. 23.

Contact Sam Fletcher at samf@ogjonline.com.

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