MARKET WATCH: Oil, natural gas prices fall

Energy prices dropped Jan. 7 in response to market indicators, ending a 10-session rally that had carried crude to a 52-week high in the New York futures market.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 8 -- Energy prices dropped Jan. 7 in response to market indicators, ending a 10-session rally that had carried crude to a 52-week high in the New York futures market.

The front-month natural gas contract fell 3% after the Energy Information Administration reported the withdrawal of 153 bcf of gas from US underground storage in the week ended Jan. 1, just below the Wall Street consensus for a draw of 154-155 bcf. That left 3.1 tcf of working gas still in storage, up 286 bcf from the same period last year at this time and 316 bcf above the 5-year average.

Analysts in the Houston office of Raymond James & Associates Inc. said, “We expect some very large withdrawals on the way with the extreme weather that is currently blanketing the US.”

The US Department of Labor reported new applications for unemployment benefits increased less than expected, up by 1,000 to 434,000 in the week ended Jan. 2, after falling the previous week to its lowest level since July 2008. The number of continuing claims dropped 179,000 to 4.8 million.

In other news, China’s central bank raised the interest rate on 3-month bills at a higher interest rate for the first time in 4 months to curb lending, and the US dollar continued to strengthen.

“Despite a small setback, West Texas Intermediate remains well supported in a so-called ‘winter rally’ where the heating oil crack continues to drift lower and where even natural gas is under pressure as the US weather maps are starting to confirm a relative thaw around Jan. 15,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “Rather than a weather storm, our opinion is that crude oil prices are currently under a financial storm linked to the repositioning of the different books for 2010, and we will also have to wait for the second half of January to trade market inputs rather than position management.”

Jakob said, “The dollar index was very well supported yesterday, and this continues to keep crude way overbought on the basis of the euro-dollar correlation.” He reiterated, “There is nothing sacred in a dollar correlation, but we would have more confidence in the current crude oil rally if it was at least led by a pull on heating oil values rather than forcing a lower seasonal crack (OGJ Online, Jan. 7, 2010).”

Energy prices
The February contract for benchmark US light, sweet crudes dropped 52¢ to $82.66/bbl Jan. 6 on the New York Mercantile Exchange. The March contract lost 56¢ to $83.19/bbl On the US spot market, WTI at Cushing, Okla., was down 52¢ to $82.66/bbl. Heating oil for February delivery declined 1.96¢ to $2.18/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month slipped 0.17¢ to $2.13/gal.

The February contract for natural gas gave up most of the gain that carried it above $6/MMbtu in the previous NYMEX session, dropping 20.3¢ to $5.81/MMbtu. On the US spot market, however, gas at Henry Hub, La., continued to surge, up a remarkable 94.5¢ to $7.38/MMbtu.

In London, the February IPE contract for North Sea Brent lost 38¢ to $81.51/bbl. Gas oil for January dropped $1.50 to $660.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes continued climbing, however, up 48¢ to $80.12/bbl on Jan. 7.

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