MARKET WATCH: Crude slips below $80/bbl

Energy prices dropped Nov. 5 with crude dipping below $80/bbl, even though the equity market “jumped out of its pants” with the Dow Jones Industrial Average up more than 200 points, said analysts in the Houston office of Raymond James & Associates Inc.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Nov. 6 -- Energy prices dropped Nov. 5 with crude dipping below $80/bbl, even though the equity market “jumped out of its pants” with the Dow Jones Industrial Average up more than 200 points, said analysts in the Houston office of Raymond James & Associates Inc.

Crude prices were down 1% “after the dollar held its price level throughout the trading day,” they reported.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “We had noted that the intraday correlations were working less precisely this week, but yesterday was a clear break from recent patterns. Higher productivity is not higher production, and there is a fundamental reason why equity markets should have risen without being followed by crude oil. It has been many days since we could find a fundamental justification for a global trade.” The US government reported Nov. 5 the fastest rise in 6 years in nonfarm productivity during the third quarter.

Sticking point
In New Orleans, analysts at Pritchard Capital Partners LLC said crude and the dollar traded in a tight range. Despite positive crude inventory data reported this week by the Energy Information Administration, the analysts said, “Crude seems stuck at $80/bbl.”

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said the front-month crude contract peaked at $82/bbl Aug. 21 and “has vacillated over the past 10 trading days either side of $80/bbl on the ebb and flow of financial market sentiment on the likely timing and speed of economic recovery. The DJIA has failed to sustain 10,000…and the US dollar has strengthened to around 1.48 vs. the euro from above 1.50.”

However, they said, “Despite the possibility of further supportive developments in the financial sector, investors may find it difficult to sustain oil prices at levels above $80/bbl.” KBC analysts see more downside risk over a 3-month outlook.

Pritchard Capital Partners noted a positive report by the EIA on natural gas storage. They said, “Two storms that are potentially threatening the Gulf of Mexico will provide support for natural gas in today’s trading. Hurricane Ida is reported to be moving north and will be in the Gulf of Mexico by [Nov. 9]. A second storm that is located in the southern gulf may also develop into a tropical system late this weekend.”

Oil demand
The Deutsche Bank Group reported global oil demand began to improve in the second quarter but is still running “at a slightly negative rate” year-over-year in the fourth quarter. “We expect this situation to improve dramatically in the first quarter of 2010 with oil demand up at least 1 million b/d and possibly as much as 1.5 million b/d,” said Deutsche Bank analysts. “The remaining quarters of 2010 should show relatively steady year-over-year improvement of about the same absolute amount. In our opinion, the year 2009 increase will average about 1.3 million b/d compared to a 1996-2007 average of circa 1.4 million b/d.”

Deutsche Bank analysts said, “We believe the next decade may herald a significantly more volatile macro economic environment than we have seen in the past. However, given the significant provision of liquidity by the US Federal Reserve, concerns over a double-dip next year are probably misplaced. Our analysis would suggest that if the Fed starts to tighten monetary policy during 2010, the economic expansion could be sustained into 2012. Even so, this would mark one of the shortest expansions in the US in the last 55 years.”

Energy prices
The December contract for benchmark US light, sweet crudes dropped 78¢ to $79.62/bbl on NYMEX. The January contract declined 79¢ to $80.82/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 78¢ to $79.62/bbl. Heating oil for December delivery lost 3.26¢ to $2.06/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month declined 2.5¢ to $1.99/gal.

The January natural gas contract on NYMEX continued to move in the opposite direction from oil, up 5.7¢ to $4.78/MMbtu. But on the US spot market, gas at Henry Hub, La., was down 16¢ to $4.31/MMbtu.

In London, the December IPE contract for North Sea Brent crude dropped 90¢ to $77.99/bbl. Gas oil for November lost $1.25 to $639.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes declined 15¢ to $77.45/bbl Oct. 5.

Contact Sam Fletcher at samf@ogjonline.com.

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