MARKET WATCH: Crude, gas prices continue to slip

The front-month crude contract dipped lower again Dec. 3 in the New York market among resurrected doubts that demand soon will increase to sop up large inventories of oil and natural gas.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 4 -- The front-month crude contract dipped lower again Dec. 3 in the New York market among resurrected doubts that demand soon will increase to sop up large inventories of oil and natural gas.

Natural gas was down too, following the surprise injection of 2 bcf into US underground storage in the last week of November (OGJ Online, Dec. 3, 2009). “Unless the weather warms up, this is the last injection of 2009 and the highest storage of all time,” said analysts in the Houston office of Raymond James & Associates Inc. “We have 470 bcf more gas in storage when compared [with] last year. Gas prices ended down 1.6% after the news.”

That left markets in the highly unusual position of North Sea Brent commanding a higher price in the London market than West Texas Intermediate on the New York Mercantile Exchange, while gas on the US spot market was priced higher than the front-month NYMEX contract.

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, “With somewhat colder weather this week, we expect the Energy Information Administration to report a storage draw [in its Dec. 10 weekly report]. However, we expect the second half of December will see unseasonably warm weather again and consequently the risk that storage will be excessively high next April is rising.”

The EIA earlier reported commercial US benchmark crude inventories increased by 2.1 million bbl to 339.9 million bbl in the week ended Nov. 27, surprising Wall Street analysts who were expecting a draw of 500,000 bbl. Gasoline inventories jumped by 4 million bbl to 214.1 million bbl. Distillate fuel inventories dropped 1.2 million bbl to 165.7 million bbl, still above average for the time of year (OGJ Online, Dec. 2, 2009).

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The heating oil crack is relatively firm as the weather in the US is turning colder over the next 10 days, but since the contango in distillates is also widening, this should not dent the levels of floating stocks.”

The “floating gasoil phenomenon will persist into 2010, barring an extremely cold winter and a stronger-than-expected economic recovery,” Sieminski said

Meanwhile, Raymond James analysts said, “This morning the government reported that the US unemployment rate fell from 10.2% to 10%, as employers cut the smallest number of jobs since the recession began. Expect the market to respond very positively to this news.”

Energy prices
The January contract for benchmark US light, sweet crudes dropped 14¢ to $76.46/bbl Dec. 3 on the New York Mercantile Exchange. However, the February contract inched up 4¢ to $78.21/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down 14¢ to $76.46/bbl, still in lockstep with the front-month NYMEX contract. Heating oil for January gained 1.31¢ to $2.05/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month inched up by 0.02¢ but closed relatively unchanged at an average $1.99/gal.

The January natural gas contract lost 7.1¢ to $4.46/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 9¢ to $4.56/MMbtu.

In London, the January IPE contract for North Sea Brent crude increased 48¢ to $78.36/bbl. Gas oil for December gained $2.75 to $620.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 1¢ to $77.32/bbl Dec. 3.

Contact Sam Fletcher at samf@ogjonline.com.

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