MARKET WATCH: Crude price falls for fifth session

Energy prices continued falling Jan. 15 in the New York market, with crude down for the fifth consecutive session as jobless claims rose and retail sales fell, indicating a possible slowdown in the economic recovery.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 18 -- Energy prices continued falling Jan. 15 in the New York market, with crude down for the fifth consecutive session as jobless claims rose and retail sales fell, indicating a possible slowdown in the economic recovery.

Moreover, the US dollar gained in value against the euro and the British pound but dipped lower against the Japanese yen. “The weak dollar has been a factor supporting oil prices throughout 2009. Although the dollar and oil prices have become less closely linked so far this year, a rise in US interest rates would be a double whammy for oil prices because it would strengthen the dollar and could potentially slow economic growth,” said analysts at KBC Energy Economics, a division of KBC Advanced Technologies PLC, London.

The Energy Information Administration also reported last week bigger-than-expected builds in US crude, gasoline, and distillate fuel inventories.

“Despite several weeks of freezing weather, which have boosted heating-related demand for oil products throughout the northern hemisphere, middle distillate crack spreads are back in single digits around the world,” KBC analysts said. “The oil market's verdict on the impact of the cold snap has been as mild as the weather has been severe. In the US, despite the coldest December for 9 years, heating oil stocks remain nearly 2 million bbl higher than last year, and total middle distillate demand remains 4% down year on year.” Meanwhile, forecasts are for warmer weather.

KBC analysts said, “In Europe, middle distillate stocks in the 16 countries monitored by Euroilstock ended December higher than the month before and up nearly 4.7% year on year. Oil product stocks held at sea remain at just over 95 million bbl, just 2 million bbl off their highest level ever.”

They reported, “Floating storage of crude oil has dropped to below 40 million bbl as the market contango narrows, according to trade reports. The latest monthly data from ship-brokers showed that crude oil stocks at sea had dropped to around 50 million bbl by the end of December, a 10 million bbl decline in 2 months. The discount of prompt crude oil to futures has narrowed significantly in recent weeks, making the storage of oil less rewarding and from what we can see this has prompted a further decline in volumes held at sea. A narrower contango is sometimes also a sign that physical demand for oil is improving. Back in April-May last year, the volume of crude oil held at sea had reached 100 million bbl but the subsequent decline from these levels was offset by a rise in oil products in floating storage.” They added, “Although the volume of oil products held at sea remains at close to all-time highs, the drop in crude oil stocks at sea has drawn attention given the recent extremely cold weather that has boosted crude prices to above $80/bbl.”

Energy prices
The February contract for benchmark US light, sweet crudes dropped $1.39 to $78/bbl Jan. 15 on the New York Mercantile Exchange. The March contract lost $1.51 to $78.37/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $1.39 to $78/bbl. Heating oil for February delivery declined 3.69¢ to $2.05/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month retreated 2.84¢, also closing at $2.05/gal.

The February natural gas contract gained 10.3¢ to $5.69/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 11.5¢ to $5.67/MMbtu.

In London, the March IPE contract for North Sea Brent crude lost $1.46 to $77.11/bbl. Gas oil for February was down $6.25 to $630/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes dropped $1.03 to $76.56/bbl on Jan. 15.

Contact Sam Fletcher at samf@ogjonline.com.

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