MARKET WATCH: Market anticipations drop oil, gas prices

Crude prices continued to fall Sept. 21, pulled down by a drop in the broader equity markets and a strengthening US dollar ahead of the Sept. 24-25 meeting in Pittsburgh of the Group of 20 (G-20) finance ministers and central bank governors of 19 countries plus the European Union.

Sep 22nd, 2009

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 22 -- Crude prices continued to fall Sept. 21, pulled down by a drop in the broader equity markets and a strengthening US dollar ahead of the Sept. 24-25 meeting in Pittsburgh of the Group of 20 (G-20) finance ministers and central bank governors of 19 countries plus the European Union.

Natural gas continued to seesaw with the front-month contract down in the New York market after rebounding 9.2% on Sept. 18. However, prices for both oil and gas were up in early trading Sept. 22 as the Federal Reserve began a 2-day meeting on interest rates. The general expectation is that the Fed will keep rates at the record near-zero low.

“The main change in the [upward] overnight trading action, however, has been the strong attack on the dollar index,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “The dollar had made a rebound over the last 2 days but is coming again under severe selling pressure [in early European trading]. The automated trading machines are therefore buying stocks and oil futures on the renewed fall of the dollar. The problem with that trade is that the machines are not buying the products, and it then puts even more pressure on the cracks. With the Fed starting its 2-day meeting today and the G-20 starting Sept. 23, volatility is likely to remain strong on the dollar index.”

Jakob added, “The dollar index remains a day-trade input, but the resistance of the products is actually making for a correlation breakdown on a longer term horizon and this should bring renewed selling of crude on any move back towards the top of the [$68-73/bbl] range.”

In New Orleans, analysts at Pritchard Capital Partners LLC said the dollar strengthened in anticipation G-20 leaders will issue a unified statement in support of a strong US dollar. It also was buoyed by the 0.6% increase in leading economic indicators in August, adding to “the longest stretch of gains seen since 2004,” analysts said.

Pritchard Capital Partners attributed the sell-off of natural gas to the price action of the front-month contract in the New York market late last week. “The [Sept. 18] high did not exceed the [Sept. 17] high, and technicians identified this minor failure as a possible indication that the 10-day rally in natural gas (natural gas has rallied from $2.40 to $3.80) is losing momentum. Therefore, for technical traders to turn positive natural gas will probably need to trade above $3.80[/MMbtu].”

In Houston, analysts at Raymond James & Associates Inc. reported, “Recent news showed China's net crude oil imports rose 18% to 17.92 million [tonnes] in August, the second-highest amount on record. That said, Saudi officials have announced they do not expect to place idled oil fields back into production next year as they have yet to see a recovery in global oil demand. Currently, Saudi Arabia has idled about one-third of its production capacity.”

Energy prices
The October contract for benchmark US sweet, light crudes traded at $68.96-72.20/bbl before closing at $69.71/bbl, down $2.33 Sept. 21 on the New York Mercantile Exchange. The November contract dropped $2.56 to $69.93/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $2.33 to $69.71/bbl. Heating oil for October delivery declined 7.62¢ to $1.75/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month fell 8.1¢, also to an average $1.75/gal. “Gasoline is stuck in a small range between $1.85 and $1.75/gal,” Jakob said. “It closed yesterday at the bottom of the range and remains the weak link of the oil complex.”

The October natural gas contract dropped 20.2¢ to $3.58/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 21.5¢ to $3.38/MMbtu.

In London, the November IPE contract for North Sea Brent crude lost $2.63 to $68.69/bbl. Gas oil for October fell $19.75 to $559.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped $1.20 to $68.42/bbl on Sept. 21. So far this year, OPEC’s basket price has averaged $56.26/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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