Crude oil futures prices settled lower Monday amid lingering worries over the European debt crisis.
U.S. benchmark futures staged an abrupt shift in the recent trading pattern, which market-watchers attributed to easing concerns over near-term supplies. December U.S. crude futures dropped below the January-delivery contract for the first time since Oct. 21, and returned to the market structure that had been in place at the front-end of the market for the past three years.
The realignment was attributed to position adjustments ahead of the expiration Friday of the December contract, which had vaulted to a fresh 3-1/2 month high near $100 a barrel in overnight trading.
Nymex front-month crude failed to hold its high of $99.69 a barrel as the euro weakened against the dollar on worries that even with new governments in Italy and Greece, there are still strong doubts over a near-term fix to the sovereign debt crisis that is rattling European economies. The strong dollar drove investors out of dollar-based crude investments as others were taking profit after a 7.4% rise in prices heading into Monday's trading.
December delivery of light, sweet crude on the New York Mercantile Exchange settled 85 cents lower at $98.14. The January contract settled 67 cents lower at $98.22. December ended eight cents below the January contract Monday, after settling at a 10-cent premium to January Friday.
ICE December Brent crude oil, ahead of its expiration Tuesday, fell 2%, or $2.27 to $111.89 a barrel, the lowest level since Nov. 3.
The accelerated December drop compared with January also shows "crude supplies still aren't tight," said Tim Evans, analyst at Citi Futures Perspective. While U.S. crude oil inventories have slipped well below year-earlier levels, they remain above the five-year average level, both in outright volume and when measured against refiner demand.
"We've been very over-extended as cruised through $95 and up toward $100 and we could be headed for a move back to sub-$90," said Gene McGillian, a broker and analyst at Tradition Energy. "But, if we don't hear any real dire news from Europe about a recession that's going to impact the whole global economy, then we could still see another fourth-quarter rally."
Andy Lipow, president of Houston-based research firm Lipow Oil Associates, said backwardation was being wiped out because sentiment over the same issues that drove the market higher in recent weeks--including resolution of the European debt crisis and supply-demand fundamentals in the U.S.--turned from positive to negative. In the longer term, he said he believes crude's forward curve will flatten out, alternating between backwardation and contango. With euro-zone instability dragging on, additional supplies expected to come on line in the U.S. in the next year, and Congress in a log-jam over domestic budget balancing, macro issues will continue to weigh on the market, he said.
"I just think these things are hurting crude," he said. "I think the big picture is going to be the debt issues around the world, and how that plays out with the crude oil markets as well as the rest of the commodity markets."
Near-term U.S. supply/demand fundamentals will come into focus with the release of weekly oil inventory data later this week.
According to early estimates from six analysts surveyed by Dow Jones Newswires, crude oil inventories fell by 1.3 million barrels, as refiners nudged operations relative to capacity up by a slim 0.1 percentage point.
The American Petroleum Institute, a trade group, releases its inventory data at 4:30 p.m. EST Tuesday. The widely watched government survey, from the Energy Information Administration, is due out at 10:30 a.m. EST Wednesday.
The data is expected to show gasoline stocks dropped 900,000 barrels, while distillate stocks, comprising heating oil and diesel fuel, are expected to show a 2.8-million-barrel drop.
December reformulated gasoline blendstock futures fell for a fifth straight day, settling down 2.6%, or 6.85 cents, at $2.5353 a gallon. The price is the lowest since Oct. 4 and has dropped 7%, or 19.29 cents a gallon in the past week.
Heating oil for December settled 0.94 cent lower, at $3.1622 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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