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OIL FUTURES: Crude At 18-Month Low On Weather January 4, 2007

Posted by notapundit in Economic News.

NEW YORK (Dow Jones)–Crude oil futures slumped to an 18-month settlement low Thursday after the U.S. Department of Energy said gasoline stockpiles rose more than expected and as a warm Northeast winter continued to damp heating oil demand.

Crude prices have now fallen 9% in the first two floor trading sessions of 2007. Heating oil futures fell to a 19-month low, as demand is crimped in the Northeast, the source of most U.S. heating oil consumption.

“It’s not slowing; once the market goes it just keeps going” down, said Tom Bentz, an analyst at BNP Paribas in New York. “Gasoline had been supporting the whole market, so the bigger-than-expected rise in stockpiles could have pulled the rug from under” it. He added that crude prices have been under selling pressure since falling below $60 a barrel Wednesday.

The front-month February light, sweet crude contract on the New York Mercantile Exchange settled $2.73, or 4.7%, lower at $55.59 a barrel, the lowest for a front-month contract since June 2005. Brent crude on the ICE futures exchange fell $2.85, or 4.9%, to $55.11 a barrel, the lowest since Nov. 30, 2005.

The main driver of New York crude price slide from $61.05 a barrel at the start of the year has been continued warm winter weather in the U.S. Northeast, the source of 80% of the nation’s heating oil demand.

The National Weather Service’s latest charts continue to predict above-normal temperatures in the Northeast well into January.

February heating oil fell 4.5 cents, or 2.8%, to $1.5431 a gallon, the lowest settlement since June 2, 2005. Front-month reformulated gasoline blendstock for oxygen blending, or RBOB, fell 6.19 cents, or 4%, to $1.487 a gallon, its lowest for two months.

Brent crude’s push lower was helped by ICE gas oil futures, which fell $7.25 to $494.50 a metric ton, breaking through the important $500 support level, said Aaron Kildow, a broker at Prudential Financial in New York.

“The weather is mild here and it also is in Europe, so there’s a feeling demand there will dry up and heating oil will head here, where there’s not much demand either,” said Kildow.

A lot of fresh fund selling helped drive prices lower, he said.

The DOE’s Energy Information Administration said gasoline stockpiles rose by 5.6 million barrels in the week ended Dec. 29, well above analysts’ forecasts for a 1.1 million-barrel build, reported in a Dow Jones Newswires survey. Distillate stocks, which include heating oil and diesel, rose 2 million barrels, compared with analysts’ forecasts of a 1.2 million-barrel build.

“If you can’t get a draw in distillate stocks in the last week of December, when are you going to get it?” said Peter Beutel, president of trading advisory firm Cameron Hanover in New Canaan in Connecticut. “The big build in gasoline stockpiles was bigger than anyone expected.”

Crude oil stockpiles unexpectedly fell by 1.3 million barrels, compared with analysts’ expectations of a 930,000-barrel build.

Beutel said crude prices could also have been weighted down as people look to next week’s DOE report.

A clear Houston Shipping Channel, where tankers had been delayed, and restocking by companies that had destocked for end-of-year tax purposes could lead to a build next week, he said. Gasoline demand also historically drops in the first week of the year, which could further boost stockpiles.

Also weighing on prices, crude oil production by the Organization of Petroleum Exporting Countries crept up in December, according to a survey by Dow Jones Newswires.

The survey of oil traders, analysts and industry sources showed that December production by the group’s 10 members that have quotas (Iraq isn’t part of any quota agreement) rose by 75,000 barrels a day on the month to 27.08 million b/d.

The latest figure shows the OPEC-10 have cut output by 500,000 b/d, less than their agreement to reduce supply by 1.2 million b/d from Nov. 1.

Following are prices for selected Nymex and ICE contracts and their comparison to values at the prior day’s settlement. Highs and lows include levels hit in overnight trade.

Prices for crude oil are in dollars a barrel and the change is in cents; prices for Nymex products are in cents a gallon and the changes are in points; prices for ICE gasoil are in dollars a ton and the change is in cents.

Nymex Prices:
Contract Settle Change Vs Low High
Feb crude oil 55.59 -273 55.39 58.58
Mar crude oil 56.64 -277 56.45 59.68
Feb heating oil 154.31 -450 154.10 160.31
Mar heating oil 158.11 -460 158.00 163.70
Feb RBOB 148.70 -619 148.23 155.90
Mar RBOB 152.95 -629 152.50 160.00

ICE Prices:
Contract Settle Change Vs Low High
Feb ICE Brent 55.11 -285 55.03 58.41
Mar ICE Brent 56.24 -280 56.16 59.47
Jan gasoil 494.50 -725 493.00 509.00
Feb gasoil 498.75 -750 497.25 513.00

By Matt Chambers, Dow Jones Newswires


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