MARKET WATCH: Demand concerns wipe out early crude price gains
Crude prices rose in early trading Dec. 10 on indications of stronger Chinese imports, but those gains disappeared in a later selloff in the New York market on concerns US demand will fall. The result was a general decline in energy prices.
However, oil prices were up slightly in early trading Dec. 11 ahead of a meeting of Federal Reserve System executives due to general hope they will approve another bond-buying program later this week.
“This morning, we’ve seen some support from a weaker dollar, although once again it is Brent that is benefiting the most,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. “Speculation is growing that the Fed will announce further quantitative easing. We expect that this will be the case with the expiring Operation Twist [a program to sell shorter-term securities and buy longer-term bonds to reduce long-term interest rates and encourage borrowing and spending (OGJ Online, June 21, 2012)] replaced by outright bond purchases. Essentially, we foresee an announcement committing to open-ended bond purchases of $45 billion/month, in addition to the $40 billion/month open-ended commitment to buy mortgage-backed securities. Such a move would certainly lift commodity markets on the expectation of continued investor interest.”
Analysts in the Houston office of Raymond James & Associates Inc. noted broader markets continued to gain ground Dec. 10 with the Dow Jones Industrial Average up slightly (0.1%) for the fourth straight session. “The gain came on improved Chinese statistics and with comments from President Barack Obama that he is ‘willing to compromise a little bit’ on the fiscal cliff issues,” they said. Still, Congress has made no progress in compromising on a fiscal federal budget, with the US economy still moving toward the resulting fiscal cliff at the end of this year.
Despite the positive Chinese economic data, crude prices fell Dec. 10 for the fifth straight session (down 0.4%) to the lowest prices in nearly 1 month. Natural gas tumbled 2.5% on warmer than normal weather forecasts. The SIG Oil Exploration & Production Index followed the commodities trading down 1.3% while the Oil Service Index was flat.
The previous upward momentum of West Texas Intermediate prices “has been considerably muted, indicative of continued worries over the strength of the US economy and the negative impact that the impending fiscal cliff might already have had on consumer and investor confidence and consequently expenditure and investment decisions,” said Ground. “The market is struggling to shake off concerns over weakening US crude demand, despite relatively positive macro data out recently. Crude and product inventory data is keeping these demand concerns alive.”
In other news, ExxonMobil Corp. said in its latest long-term energy outlook rapid production growth in the US and Canada will lead to North America becoming a net exporter of oil and gas by the middle of the next decade (OGJ Online, Dec. 11, 2012). The company predicted natural gas will account for 30% of global electricity generation by 2040, up from less than 25% today.
Energy prices
The January contract for benchmark US sweet, light crudes declined 37¢ to $85.56/bbl Dec. 10 on the New York Mercantile Exchange. The February contract decreased 40¢ to $86.10/bbl. On the US spot market, WTI at Cushing, Okla., followed the front-month future contract down 37¢ to $85.56/bbl.
Heating oil for January delivery dipped 1.91¢ to $2.90/gal on NYMEX. Reformulated stock for oxygenate blending for the same month inched up 0.07¢ but closed essentially unchanged for the third consecutive session at a rounded $2.60/gal.
The January natural gas contract fell 9.1¢ to $3.46/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 2.8¢ to $3.63/MMbtu.
In London, the January IPE contract for North Sea Brent gained 31¢ to $107.33/bbl. Gas oil for December lost $2 to $903.75/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 26¢ to $105.01/bbl.
Contact Sam Fletcher at [email protected].
Sam Fletcher | Senior Writer
I'm third-generation blue-collar oil field worker, born in the great East Texas Field and completed high school in the Permian Basin of West Texas where I spent a couple of summers hustling jugs and loading shot holes on seismic crews. My family was oil field trash back when it was an insult instead of a brag on a bumper sticker. I enlisted in the US Army in 1961-1964 looking for a way out of a life of stoop-labor in the oil patch. I didn't succeed then, but a few years later when they passed a new GI Bill for Vietnam veterans, they backdated it to cover my period of enlistment and finally gave me the means to attend college. I'd wanted a career in journalism since my junior year in high school when I was editor of the school newspaper. I financed my college education with the GI bill, parttime work, and a few scholarships and earned a bachelor's degree and later a master's degree in mass communication at Texas Tech University. I worked some years on Texas daily newspapers and even taught journalism a couple of semesters at a junior college in San Antonio before joining the metropolitan Houston Post in 1973. In 1977 I became the energy reporter for the paper, primarily because I was the only writer who'd ever broke a sweat in sight of an oil rig. I covered the oil patch through its biggest boom in the 1970s, its worst depression in the 1980s, and its subsequent rise from the ashes as the industry reinvented itself yet again. When the Post folded in 1995, I made the switch to oil industry publications. At the start of the new century, I joined the Oil & Gas Journal, long the "Bible" of the oil industry. I've been writing about the oil and gas industry's successes and setbacks for a long time, and I've loved every minute of it.
