MARKET WATCH: Crude prices fall for fifth consecutive session
Sam Fletcher
Senior Writer
HOUSTON, Sept. 5 -- Crude prices fell Sept. 4 for the fifth consecutive session as the euro dropped to its lowest level against the dollar this year and oil and gas operations in the Gulf of Mexico and along the Gulf Coast began coming back on stream.
"The euro did get under very serious pressure yesterday, erasing any storm premium left in the oil markets," said Olivier Jakob at Petromatrix, Zug, Switzerland. "The dollar index will face another test on the [Sept. 5] release of the US nonfarm payroll. Our dollar index and oil correlation model is showing West Texas Intermediate over-valued by more than $20/bbl, and in the current trend of the dollar index it is becoming harder and harder to see WTI rising back to previous record highs."
Despite earlier predictions that it would take weeks for Entergy Corp., Louisiana's largest utility, to restore power following the hurricane damage in that state, there were reports Sept. 5 that power had been restored to four of the five idled Louisiana (OGJ Online, Sept. 4, 2008). "The refineries will not return to full capacity on day 1, hence physical premium could remain firm for a few more days; however, with the improved cracks when refineries do return they will be producing more products than before the storm. Hence the futures crack should start to find a ceiling and provide less support to the complex," Jakob said.
In New Orleans, analysts at Pritchard Capital Partners LLC said crude futures prices weakened in after-hours electronic trading and were poised early Sept. 5 to post the biggest weekly drop in more than a month. "The front-month contract has shed nearly $9/bbl, or 7.6%, since Aug. 29, after it became clear that the US Gulf Coast oil infrastructure would escape Hurricane Gustav with minimal damage," the analysts said. Refined products also posted sizeable price losses in after-hours trading—"most notably heating oil," which dipped below $3/gal.
In less than 2 months, the front-month contract for reformulated blend stock for oxygenate blending (RBOB) has plunged 92¢ from the record-high $3.63/gal on July 11. "But while RBOB futures continue to deflate, gasoline differentials throughout the US cash market are soaring in the wake of Hurricane Gustav," Pritchard Capital analysts said.
After Gustav
As of midday Sept. 4, the US Minerals Management Service reported workers still had not returned to 527 of the 717 manned platforms and 63 of the 121 mobile rigs in the Gulf of Mexico. MMS said 95.2% of the oil and 87.5% of the natural gas normally produced from federal leases in the gulf remained shut in.
Michael Schmitz, Banc of America Securities LLC, said, "The shut-in production is expected to be at least partially offset by the temporary shut-down of refineries and other industrial plants along the Gulf Coast."
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