DJ OIL FUTURES: Crude Retracing Gains, Supply Threats Ease
By Norval Scott
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Crude oil futures in the U.S. and London markets
continued sliding in early trading Tuesday, as prices corrected from last
week's record highs.
The market is expecting crude and gasoline stock builds in Wednesday's U.S.
inventory report, and traders are adjusting their positions downwards on the
New York Mercantile Exchange ahead of the November light, sweet crude
contract's expiry Wednesday.
At 1100 GMT, the December Brent crude contract traded at London's
International Petroleum Exchange was down by 48 cents to $48.43 a barrel.
November IPE gasoil was down $6.25 at $462.00 a ton.
The December Brent contract remains capped by its $50.40/bbl high and is now
retracing lower, says Dow Jones' Chief Technical Analyst for Europe, Axel
Rudolph.
He said it is targeting the $47.55/bbl-$47.42/bbl support zone in days ahead,
and if this is breached then the next lower support zone between
$46.30/bbl-$46.00/bbl would be eyed. Resistance at $48.90/bbl should cap the
Brent crude price Tuesday.
The November light, sweet contract on Nymex is trading down 57 cents at
$53.09/bbl in Access trade, continuing Monday's fall, when the contract lost
$1.26/bbl.
Monday's price drop was prompted by liquidation of long gasoline positions,
brokers said, while profit-taking in a market seen as overbought and a 20%
increase in Nymex margins on back-month crude futures, which came into effect
Monday, were also viewed as contributory factors.
Winter fuel stocks are still the main issue at play in the market, and
Wednesday's U.S. inventory report will again be watched closely for any
evidence that the heating oil picture is improving.
In a survey of 12 analysts polled by Dow Jones Newswires, most expect a build
in crude and gasoline stocks, but a draw in distillates. Sky-high prices in
Europe are likely to continue to minimize imports to North America, meaning a
distillate stock build isn't likely, analysts say.
The analysts surveyed estimated an average commercial crude inventory rise of
1.7 million barrels for the week ended Oct. 15, marking the third increase in
as many weeks.
They predict a rise in refinery utilization rates of 1.1 percentage points to
88% of operable capacity, as well as a build in gasoline stocks of 380,000 bbl
to stand just above the U.S. government's Energy Information Administration's
five-year average.
However, distillate inventories, the real focus of market attention
currently, are expected to slide by 850,000 bbl, which would leave distillate
stocks 6.5% below the five-year average.
The lack of distillate builds has caused concerns ahead of what is predicted
to be a cold winter, triggering fears of more record-high prices.
However, supply-side disruptions have eased, says Simon Wardell, head of
energy at World Markets Research Centre.
"It's the first time I can remember that I looked at the news and didn't see
any new pressing threats to supply," he said.
"Gulf of Mexico supply is coming back after disruption, Yukos production
isn't going to stop, Iraq has died down a little recently and the Nigerian
general strike has passed over," he said.
"A lot of the recent price rise was based on what might happen, instead of
what will happen, and now that these possibilities haven't transpired we should
see prices ease," he said, adding that without further supply threats prices
should settle down to around $45/bbl.
-By Norval Scott, Dow Jones Newswires; +44 (0) 207-842- 9344;
[email protected]
