MARKET WATCH: Crude prices slip while gas prices rally

Crude prices slipped Oct. 2 in the third straight session of profit taking on the New York market, but losses were reduced by a rally in natural gas futures prices because of potential storm activity in the Gulf of Mexico.

Sam Fletcher
Senior Writer

HOUSTON, Oct. 3 -- Crude prices slipped Oct. 2 in the third straight session of profit taking on the New York market, but losses were reduced by a rally in natural gas futures prices because of potential storm activity in the Gulf of Mexico.

Meteorologists said a complex low pressure system over the southeastern gulf has the potential of developing into a tropical storm over the next several days. "The weather low in the gulf continues to move on a westerly track. Its calculated path takes it towards Texas, and while the path is supportive for oil prices the intensity forecast is not enough yet to make it a real worry for oil assets," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

Crude prices climbed above $80/bbl in premarket trading Oct. 3 in New York with traders expecting the latest US inventory data to show a decline in crude stocks. "Until the dollar strengthens or inventories increase, we expect to see higher oil prices near $80, if not higher," said analysts in the Houston office of Raymond James & Associates Inc. "Although the majority of the hurricane season has passed, investors still remain cautious for any sign of weather that could disrupt production in the Gulf of Mexico."

US inventories
The US Energy Information Administration said Oct. 3 commercial US crude inventories increased by 1.2 million bbl to 321.8 million bbl during the week ended Sept. 28. In that same week, gasoline stocks dipped by 100,000 bbl to 191.3 million bbl, well below average for that time of year. Distillate fuel inventories dropped 1.2 million bbl to 135.9 million bbl. Propane and propylene increased by 200,000 bbl to 59.1 million bbl.

Imports of crude into the US fell 189,000 b/d to 10.3 million b/d during the same week. Input of crude into US refineries increased, however, up 136,000 b/d to 15.2 million b/d, with refineries operating at 87.5% of capacity. Nevertheless, gasoline production fell to 8.7 million b/d, while distillate fuel production was down to 4.1 million b/d.

Energy prices
The November contract for benchmark US light, sweet crudes dropped 19¢ to $80.05/bbl Oct. 2 on the New York Mercantile Exchange. The December contract fell 24¢ to $79.04/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 19¢ to $80.06/bbl. Heating oil for November delivery lost 1.84¢ to $2.16/gal on NYMEX. However, the November contract for reformulated blendstock for oxygenate blending (RBOB) inched up 0.15¢ to $1.98/gal.

"WTI needed to hold $80/bbl to prevent a momentum shift and so it did," Jakob said. "The 3-2-1 refinery margin remained stable but with the RBOB crack regaining some to the detriment of the heating oil crack."

The November natural gas contract jumped up 37.7¢ to $7.43/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 20¢ to $6.66/MMbtu. "A stormy weather system in the eastern Gulf of Mexico was producing winds with the potential to form a cyclone, supporting yesterday's surge in natural gas, which reached the highest intraday price of $7.45 since June 21," Raymond James analysts reported. Gas prices were flat in premarket trading Oct. 3 with no indications that the storm will affect oil and gas operations in the gulf.

In London, the November IPE contract for North Sea Brent crude dropped 26¢ to $77.38/bbl. Gas oil for October fell $13 to $675.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 benchmark crudes fell $1.31 to $74.66/bbl on Oct. 2.

Contact Sam Fletcher at samf@ogjonline.com.

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