DJ OIL FUTURES: Nymex Crude Slides Below $57 On Weather
12/19/2005
Dow Jones News Services
(Copyright © 2005 Dow Jones & Company, Inc.)
NEW YORK (Dow Jones)--Oil prices briefly dropped below $57.00 Monday morning for the first time in December, as Northeast temperatures moderated and forecasters called for warmer weather for the Midwest.
"It's all weather driven, the neutral to mild weather in the Northeast," one trader said. "Obviously people were buying the market on the back of colder weather (forecasts), only to see heating oil and natural gas come back off."
Light, holiday-related trading volumes along with the expiration of the January crude contract on Tuesday added to the volatility.
January crude on the New York Mercantile Exchange dropped more than $1 to hit a low of $56.90, the lowest price for a front-month contract since Nov. 30.
February IPE Brent on London's ICE Futures was down 93 cents at $56.20 a barrel.
January heating oil was off 2.70 cents at $1.7050 a gallon, while January gasoline was 3.89 cents lower at $1.5300 a gallon.
January natural gas was 4.3 cents lower at $13.590 per million British thermal units.
"It's holiday weakness and low volume and talk of the warm temperature," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "Forecasts of warmer weather are engulfing the complex."
Despite the warmer temperatures, however, crude prices below $60.00 a barrel and heating oil futures below $1.78 a gallon are "probably undervalued in the near term," said Mike Fitzpatrick, analyst with brokerage Fimat USa.
"While the supply of crude oil and distillates is fairly adequate, strong demand could quickly alter the situation," he said.
Last week, the federal Energy Information Administration reported that U.S. oil demand surged 1.1 million barrels a day to 21.642 million barrels a day in the week ended Dec. 9, the highest weekly level on record. Demand for the week was up 3.4%, or 714,000 b/d, above the same week last year.
"We priced in expectations for moderating weather last week, now we have to price in the fact that demand for oil hit an all time high last week," Flynn said.
With demand on the rise, oil prices are likely to break out of their recent range of about $55.00 to $60.00 but not before the end of the year, given the light, holiday-related trading interest, Flynn said.
"I believe higher demand for oil is going to demand higher prices,,' he said.
-By Masood Farivar, Dow Jones Newswires; 201-938-2094;
masood.farivar@dowjones.com.
(END) Dow Jones Newswires
12-19-05 1145ET
Copyright (c) 2005 Dow Jones & Company, Inc.