Oil Takes Another Hit Below $76 on Lackluster Demand

The oil market was struck down to its lowest level in a month on the New York Mercantile Exchange Friday as fears that the economic recovery could be stunted by lackluster demand were spurred by Thursday's bearish inventory data and a report issued today indicating dismal consumer confidence for early November.

The price of light, sweet crude oil for December delivery tumbled nearly 60 cents from yesterday's final pricetag to close at $76.35 on the NYMEX today, the lowest settlement since the beginning of October. Crude's fall back into negative territory this week was primarily prompted by the EIA's weekly inventory report pointing to the fact that demand has yet to combat ever-increasing builds in crude products.

"Today we saw a further effect of yesterday's DOE inventory report," said analyst and broker Gene McGillian at Tradition Energy in Stamford, Connecticut.

He explained, "The market saw that inventories are still increasing, and what particularly stood out was that as refiners dropped utilization rates below 80% you still saw gasoline inventories increase significantly. That sentiment rolled over into today, and the market came under pressure since it is focusing more on the underlying fundamental picture."

Economy Woes Weigh on Crude Market

Thus far in November, U.S. consumer sentiment has fallen to its weakest point in three months driven by bleak expectations on the job and income front, according to the Reuters/University of Michigan Surveys of Consumers.

"I think the market also came under pressure from the sales side today when the consumer sentiment report came out less than it was last month, further dampening the economic optimism which has basically been the main driver behind crude oil prices running up to $82 a barrel," McGillian commented.

Further fueling the market's economic woes Friday, the Economic Cycle Research Institute indicated in its weekly measure of future U.S. economic growth that the world's top consumer's growth rate has further slipped to an 8-week low.

Underscoring the bearish reality of the market's underlying fundamentals, the head of energy giant ExxonMobil, Rex W. Tillerson said today that winter heating demand alone was unlikely to significantly reduce the global fuel inventory glut.

Natural Gas Storage Rises to All-Time High

According to the EIA's estimates, U.S. natural gas storage was flooded by 25 billion cubic feet last week, pushing inventories to an all-time high of 3.813 trillion cubic feet. Today, however, natural gas futures defied record stockpiles to close slightly higher at $4.392 per thousand cubic feet on the NYMEX Friday.

"In the natural gas market, we had a much larger injection to storage this week than people were anticipating, and we had the seventh consecutive new record in total storage going in, which the market shrugged off. However, the market did fall to a new December-contract low below $4.30, but I think that the sell-off in natural gas has been steadily ongoing now for three weeks, and we basically saw some short covering ahead of the weekend," McGillian noted.

"But the fact is gas fundamentals remain probably the weakest of all in the energy complex, except for maybe the distillate fundamentals on the oil side," the analyst observed.