Oil skids below $70 a barrel
Oil prices (CL-FT70.860.320.45%) dipped below $70 (U.S.) a barrel for the first time in two months on Thursday, extending losses for a seventh consecutive session, as excess U.S. fuel inventories created concerns about weak demand.
U.S. crude for January delivery settled at $70.54 a barrel, down 13 cents, after hitting a low of $69.81. In London, Brent crude settled at $71.86, down 53 cents.
In the latest losing streak, front-month crude has fallen $7.83, or about 10 per cent, the biggest loss for front-month crude since July.
On Wednesday, U.S. Energy Information Administration data showed builds in refined product stocks, highlighting the weakness of demand in the world’s largest energy consumer.
“The $70 level is just an arbitrary number. More importantly, prices have eroded over $6 during a week that contained no negatively jarring economic data. A fact, I think, shows conclusively the sentiment pendulum swinging more towards pessimism about a potential recovery,” said Mike Fitzpatrick, vice-president at MF Global in New York.
There were further signs that global oil supplies were rising on Thursday as fuel inventories held by two top oil firms in China, the world’s second-largest consumer of oil, also climbed as domestic sales dropped.
The Organization of the Oil Exporting Countries, which will hold its next meeting on Dec. 22, is unlikely to raise production targets, according to most members.
Ecuador’s energy minister on Wednesday said he expected OPEC to leave oil output targets unchanged at the meeting, setting the stage for prices to remain between $70 and $80 per barrel.
Meanwhile, natural gas prices (NG-FT5.26-0.04-0.76%) surged 8 per cent Thursday as the U.S. government reported supplies dropped for the first time in nine months, and trading volumes in natural gas this week have nearly doubled.
Helping boost the price of natural gas are winter storms spreading from the U.S. Midwest to the East.
Temperatures plunged across the U.S. Midwest and the Canadian Prairies, and frigid winds have forced wind chill values as low as minus 36 in Regina.
“The weather is a significant driver here,” analyst and trader Stephen Schork said. “It’s about as bullish as it can get this year.”
That’s unlikely to mean higher heating costs where natural gas is used.
Utilities locked in delivery contracts months ago when natural gas was trading at seven-year lows and that is passed on to homeowners. A number of utilities have already sent out notifications that rates are coming down.
Heating oil (HO-FT1.910.0050.27%) is another story because it generally follows the price of crude. The price for heating oil has jumped nearly 40 per cent since February, though like crude, those prices began to fall on Dec. 1.
Natural gas prices are being kept in check, at least so far, because of the unprecedented volume being held in storage.
It has been a mild winter to date and the worst economic downturn in generations has destroyed demand from big energy users like manufacturers.
Storage of natural gas is above listed capacity in the West, and at or near capacity everywhere else.
The U.S. Energy Information Administration reported that levels dropped by 64 billion cubic feet last week, the first reported draw since early March.
Natural gas for January delivery jumped 40 cents to settle at $5.298 per 1,000 cubic feet on the New York Mercantile Exchange.
At the pump, U.S. retail gasoline prices dropped slightly overnight to a national average of $2.629 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 2.9 cents cheaper than last month but 94.6 cents more expensive than the same time last year.
In Canada, the average price at the pump was 99.2 cents (Canadian) per litre, down from $1.027 per litre a month ago, according to price-watching website gasbuddy.com.
In other Nymex trading in January contracts, heating oil lost less than a penny to settle at $1.9029 a gallon while gasoline (XRB-FT1.840.0050.27%) lost 2.22 cents to settle at $1.8351 a gallon.