Sam Fletcher
OGJ Senior Writer
HOUSTON, Oct. 20 -- Crude prices continued climbing Oct. 19 for the eighth consecutive session on the New York market and broke briefly above $80/bbl for the first time in more than a year during after-hours electronic trading.
“Prices were bolstered by a weaker dollar, which hovered near its 14-month low, as well as rising market optimism as the Dow [Jones Industrial Average] also rose to a 1-year high,” said analysts in the Houston office of Raymond James & Associates Inc.
Crude prices were down in early trading Oct. 20, however, after the US Department of Commerce reported a lower-than-expected 0.5% rise in housing starts during September to an annual rate of 590,000, overshadowing higher-than-expected third-quarter earnings reported by several large US corporations. The US Department of Labor said cheaper energy reduced wholesale prices by 0.6% in September—the second decline in 3 months.
At an “Oil and Money” conference in London, Sec. Gen. Abdalla El-Badri of the Organization of Petroleum Exporting Countries told reporters an $80/bbl oil price is too high, considering the 125 million bbl of crude and fuel still in floating storage. He blamed rising prices on a robust equities market, the falling dollar, and speculators—OPEC’s usual suspects.
However, Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The blame on speculators can not really be contested given that the Commodity Futures Trading Commission is showing large speculators holding close to record-high long positions in West Texas Intermediate.”
Moreover, Jakob said, “The CFTC shows that large speculators have been adding length for the last 2 weeks in reformulated blend stock for oxygenate blending (RBOB).” Since the Energy Information Administration last week reported a bigger-than-expected 5.2 million bbl drop in US gasoline inventories for the week ended Oct. 9, Jakob said: “There has been an increase of gasoline open interest of 26,218 contracts (up 13%, and this compares to an increase of 1,900 contracts in heating oil). Open interest on RBOB gasoline futures is now only 6,000 contracts short of its 2009 high, and given that there is no known shortage of refining capacity we will have to be a little concerned about the level of speculative length in gasoline during the winter months.”
In his remarks, El-Badri pointed out some canceled oil projects are now being revived because of higher prices for crude. That, said Jakob, “is another warning sign that there will be a supply response to the current prices, and if the prices are not the reflection of higher demand than we are moving towards the creation of a further supply glut. If there is a supply response to current prices, then oil producers would need to think hard about starting to hedge their revenue for 2010.”
Jakob noted less compliance with assigned production quotas among OPEC members as crude prices increase. “With the change of atmosphere in the Nigerian Delta, we should expect to see OPEC compliance to overall cuts to come in even lower in coming months.”
Meanwhile, the Chinese appetite for energy resources remains intact. “The Chinese National Offshore Oil Corp. is reported to be in talks with StatoilHydro ASA to acquire up to five of Statoil’s Gulf of Mexico leases. Prior to this, the Chinese were buyers of all energy resources that were not in North America, and now it appears they are willing to buy all energy resources that are not owned by American corporations. In 2005, the Chinese bid for Unocal was successfully scuttled by Chevron Corp., possibly with some minor help from the government. It is difficult to envision a major correction in crude with this backdrop in place,” said analysts at Pritchard Capital Partners LLC in New Orleans.
Natural gas also traded higher Oct. 19 in the wake of colder weekend weather across the northeastern US.
Energy prices
The November contract for benchmark US sweet, light crudes gained $1.08 to close at $79.61/bbl Oct. 19 on the New York Mercantile Exchange but briefly touched $80.05/bbl in overnight electronic trading. The December contract advanced 94¢ to $79.96/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.08 to $79.61/bbl. Heating oil for November delivery increased 2.25¢ to $2.05/gal on NYMEX. RBOB for the same month inched up 0.79¢ to $1.99/gal.
The November natural gas contract was up 5.4¢ to $4.84/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 29¢ to $4.24/MMbtu.
In London, the December IPE contract for North Sea Brent crude increased 78¢ to $77.77/bbl. Gas oil for November rose $7.75 to $633/tonne.
The average price for OPEC’s basket of 12 reference crudes gained 93¢ to $75.82/bbl on Oct. 19.
Contact Sam Fletcher at [email protected].
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