MARKET WATCH: Bernanke's comments bring down crude prices

Cold weather boosted natural gas prices Dec. 7 on the New York market, but crude fell for the fourth consecutive session, closing below $74/bbl, after Federal Reserve Chairman Ben Bernanke said recent economic improvement remains shaky.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 8 -- Cold weather boosted natural gas prices Dec. 7 on the New York market, but crude fell for the fourth consecutive session, closing below $74/bbl, after Federal Reserve Chairman Ben Bernanke said recent economic improvement remains shaky.

“Oil dropped after the Fed chairman said there were ‘formidable headwinds’ for the economy and that he expects a ‘moderate’ pace of expansion. A strong dollar didn't help as it rose 0.7% against the euro, further eroding support for crude,” said analysts in the Houston office of Raymond James & Associates Inc.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Bernanke tried to maintain the carry trade by suggesting that a [interest] rate hike is still nothing to consider in the near future. That brought some pressure on the dollar and some intraday support to oil, but that was not enough to offset the pressure of the oil contango.”

Jakob noted the “global balance” for November included “4.9 million more unemployed persons in the US but 3 million more cars sold in China,” with China car sales now “double the levels of a year ago.”

Meanwhile, traders shrugged off concerns over record-high gas storage as a cold front across much of the country increased demand and prices. “The weather in the US is turning colder for the next 10 days, and that makes for a strong rebound in natural gas. But with the glut of gas stocks that are in desperate need of stock draws, we will have to observe the resistance at about $5.30/MMbtu. The colder weather front is also providing some support to the heating oil crack, although there too there are plenty of stocks to draw before we have to start to worry,” Jakob said.

In other news, Raymond James analysts noted the opening of the Copenhagen climate conference was “overshadowed” by the Environmental Protection Agency formalizing its endangerment finding for carbon dioxide and other greenhouse gases. “The decision itself is no surprise—it was widely expected following a preliminary finding issued in April,” analysts said. However, they suspect the timing of the EPA’s announcement was “designed as a way for President Obama to claim credit for something when he goes to Copenhagen” to speak at the conference Dec. 18. “Since the Waxman-Markey bill is not going anywhere in the Senate, the EPA ruling is probably the only source of leverage he can bring with him to the negotiating table. In practical terms, though, the EPA isn't about to start regulating carbon. And if it tries to do that without Congressional backing, expect a flood of litigation,” they said.

Energy prices
The January contract for benchmark US sweet, light crude fell $1.54 to $73.93/bbl Dec. 7 on the New York Mercantile Exchange. The February contract dropped $1.34 to $75.91/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.54 to $73.93/bbl. Heating oil for December delivery declined 1.71¢ to $2.01/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month lost 3.44¢ to $1.94/gal.

The January contract for natural gas continued to climb, up 38.5¢ to $4.97/MMbtu on NYMEX. On the spot market, gas at Henry Hub, La., jumped 28.5¢ to $4.81/MMbtu.

In London, the January IPE contract for North Sea Brent dropped $1.09 to $76.43/bbl. Gas oil for December lost $12.50 to $609.25/tonne.

The OPEC Secretariat was closed on Dec. 8, so the average price for OPEC’s basket of 12 benchmark crudes was not available.

Contact Sam Fletcher at samf@ogjonline.com.

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