Crude oil prices are beginning to settle closer to the summertime average of $75 a barrel as recent government reports show gasoline inventories rising a surprising 1.6 million barrels; the first increase in three weeks. Analysts were projecting a drop of 1 million barrels, on the heels of back-to-back declines of more than 2 million. The unexpected data has caused a sell-off in crude oil futures in mid-afternoon trading.
Oil traders at the New York Mercantile Exchange had anticipated a jump in crude oil futures, particularly since credit card company MasterCard reported the strongest demand for gas since last August; this despite the average price per gallon of gas increasing 18 cents in just the past two weeks.
Since oil reached a one-year high of $82 on Oct. 21, prices have stabilized and are trading below $80 for the fourth consecutive day today. Investors want to know if the bullish sentiment at the NYMEX will continue to push prices higher, or are we on the verge of a significant sell-off; a benefit much welcomed by U.S. consumers.
The common feeling is today’s sell-off has more to do with a stronger U.S. dollar and declining equity markets, than the data released this morning. While additional declines are possible, a reversal of the four-week rally “is not cut and dried yet,” said Sydney-based technical analyst, Gordon Manning, to Bloomberg News.
“The tree was shaken but serious damage hasn’t been done yet,” Manning said in a telephone interview. “The pattern is still going to be very positive while we’re above $70. If oil comes back to $70 it’s still going to look fine.”
Even with today’s pullback, oil futures have gained 78% this year.
Oil may “have another good look at $70,” Manning said. “If we are going to see a pullback in the stock market and a rally in the U.S. dollar, oil will pull back.”
The action in the Pits hasn’t been overshadowed by the recent earnings reports released by some notable oil and gas companies. The first of the three mega-capped O&G companies to release was ConocoPhillips (COP:NYSE). Surprisingly, weaker crude prices and slumping operating margins are refineries caused ConocoPhillips to see its third quarter earnings drop by 71%. The Houston, Texas-based oil giant said profit fell to $1.5 billion, or $1 a share from $5.2 billion, or $3.39 a share, in the year-ago period. Wall Street analysts had predicted the company would earn 95 cents a share.
The top-line number was particularly alarming. Revenue fell to $41.3 billion from $71.4 billion. This drop is forcing the company to put $10 billion of assets up for sale, and the company said it may unload refineries starting in 2012 if margins improve.
Reuters reports that Conoco Chief Executive James Mulva told a conference call that the company would consider selling its stake in a Canadian oil sands project, as well as some of its refining assets, and analysts have speculated that some of its North American natural gas assets may also go on the block.
“I think that with their acquisition spree, they’re suffering from a hangover and they’re going to focus on developing what they have,” said Peter Andersen, portfolio manager at Congress Asset Management in Boston, which manages $5 billion and owns shares of Conoco.
With Exxon Mobil (XOM:NYSE) and Chevron (CVX:NYSE) still to report this week, oil prices may continue the recent volatile trading pattern. Over the prior 16 months, oil has traded as high as $147.27 a barrel, seen in July of 2008, to a low of $32.40, seen in December.
“Short term, you wouldn’t be rushing out to buy,” Manning said. “You can probably afford to sit and just see what sort of a pullback we get.”
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