MARKET WATCH: Energy prices decline as world economic recovery slows
Energy prices generally declined Oct. 8 ahead of the overnight release of the latest International Monetary Fund forecast that for a second time reduced its outlook for world economic growth.
IMF now expects global economic growth of 3.3% this year, down from a 3.5% prediction in July. Its forecast for 2013 is reduced to 3.6% from earlier predictions of 3.9% in July and 4.1% in April. But the outcome could be worse if the US does not deal soon with its budget crisis, IMF officials said. They again urged US officials in Washington to raise the national debt ceiling imposed by law. IMF now sees more than an 80% chance for another recession in the Euro-zone, a 25% chance in Japan, and 15% for the US.
Earlier, the World Bank reduced its growth estimate for China, the world's second-biggest economy, and for developing Asian countries. It cut its regional Asia growth outlook to 7.2% from its 7.6% projection in March, well below the 8.2% expansion achieved in 2011. It reduced its 2013 regional outlook to 7.6% growth from its earlier projection of 8%.
“Yesterday crude oil markets were buoyed by some optimism (or rather less pessimism) surrounding the Eurozone as the European Stability Mechanism [a €500 billion new bailout program] was officially launched at a meeting of the region’s finance ministers,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “Comments out of the meeting praising Spain’s and to a lesser extent Greece’s fiscal policy and structural reforms has also helped ease concerns over the region’s debt crisis.”
Still, structural problems facing the euro remain, and the Standard Bank Group maintains its outlook for a weaker euro over the next 6 months capping any upside in commodity prices. “This morning crude oil movements are mirroring the fluctuations in the euro. Without any major data releases or any other drivers apparent, we expect this to continue today. In view of this, we have [German Chancellor Angela] Merkel’s visit to Greece today, which could see the euro-dollar [valuation] suffer if this sparks any protests in Athens.”
Sure enough, some 50,000 demonstrators took to the streets in Athens to protest Merkel’s first visit to Greece since its debt crisis erupted 3 years ago. The turnout was mostly peaceful, although police clashed with a few dozen protestors. As the largest contributor to the Euro-zone bailout fund, Germany is seen by many Greeks as a primary cause of austerity programs the Greek government was forced to initiate to receive financial aid. Merkel conferred with Greek Prime Minister Antonis Samaras during her 5-hour stopover in Athens.
Energy prices
The November contract for benchmark US sweet, light crudes dropped 56¢ to $89.83/bbl Oct. 8 on the New York Mercantile Exchange. The December contract fell 54¢ to $89.93/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 56¢ to $89.33/bbl.
Heating oil for November delivery declined 1.16¢ to $3.14/gal on NYMEX. Reformulated stock for oxygenate blending for the same month lost 5.94¢ to $2.89/gal.
The November natural gas contract inched up 0.7¢ but closed essentially unchanged at a rounded $3.40/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dipped 0.3¢ but also finished unchanged at a rounded $3.19/MMbtu.
In London, the November IPE contract for North Sea Brent decreased 20¢ to $111.82/bbl. Gas oil for October gained $4 to $993.50/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes retreated 83¢ to $107.94/bbl.
Contact Sam Fletcher at [email protected].
About the Author
Sam Fletcher
Senior Writer
I'm third-generation blue-collar oil field worker, born in the great East Texas Field and completed high school in the Permian Basin of West Texas where I spent a couple of summers hustling jugs and loading shot holes on seismic crews. My family was oil field trash back when it was an insult instead of a brag on a bumper sticker. I enlisted in the US Army in 1961-1964 looking for a way out of a life of stoop-labor in the oil patch. I didn't succeed then, but a few years later when they passed a new GI Bill for Vietnam veterans, they backdated it to cover my period of enlistment and finally gave me the means to attend college. I'd wanted a career in journalism since my junior year in high school when I was editor of the school newspaper. I financed my college education with the GI bill, parttime work, and a few scholarships and earned a bachelor's degree and later a master's degree in mass communication at Texas Tech University. I worked some years on Texas daily newspapers and even taught journalism a couple of semesters at a junior college in San Antonio before joining the metropolitan Houston Post in 1973. In 1977 I became the energy reporter for the paper, primarily because I was the only writer who'd ever broke a sweat in sight of an oil rig. I covered the oil patch through its biggest boom in the 1970s, its worst depression in the 1980s, and its subsequent rise from the ashes as the industry reinvented itself yet again. When the Post folded in 1995, I made the switch to oil industry publications. At the start of the new century, I joined the Oil & Gas Journal, long the "Bible" of the oil industry. I've been writing about the oil and gas industry's successes and setbacks for a long time, and I've loved every minute of it.