Energy

Return to Article

Oil Dips Along With Equities

Chuck Marvin

Crude oil and distillate futures plunged Monday on continued worries that economic weakness in Asia could reduce demand for commodities.

The April contract for crude oil closed the session down $1.57 to $60.07 per barrel on the New York Mercantile Exchange. Crude futures fell below the $60 level in after-hours electronic trading.

Reformulated gasoline is down 6 cents to $1.84 per gallon. Heating oil was 5 cents lower at $1.72 per gallon. Natural gas was trading 1 cent higher at $7.25 per million British thermal units.

The consensus among analysts is that energy commodities are continuing to move in tandem with equity markets. Stock markets in Japan, Hong Kong and other Asian countries fell by more than 3% overnight. U.S. equity markets opened lower as well, but recovered most of their losses throughout the day.

The coupling of equities and commodities first appeared last Tuesday when equity markets in Asia and the U.S. collapsed on fears that China's economy is slowing down. Energy markets, fearing a decline in demand, fell also.

"The talk on the trading floor is that if the stock market goes down, the economy goes down, so demand for oil will decrease as well," says Larry Levin, technical analyst at Secrets of Traders in Chicago. "We expect that the connection between stocks and commodities will persist through the end of this week," Levin adds.

Monday's energy markets chose to ignore bullish news and respond to bearish news, according to Tim Evans, energy analyst at Citigroup Global Markets. Reports that a major oil spill forced Royal Dutch Shell (RDSA Quote) to shut down its 187,000 barrel-per-day Nenbe Creek pipeline in Nigeria should have caused traders to bid up the price of oil, Evans says.

Rebel groups have ratcheted up their activity in the Nigerian delta region in recent months, making it increasingly dangerous for oil companies to operate there. Shell did not say whether the pipeline leak was caused by sabotage, nor did it say when the leak would be repaired.

Instead, commodity traders were perceiving weakness in stock markets as an indicator of a decline in future petroleum demand, Evans says. Prices were also affected by statements made by OPEC oil ministers suggesting that OPEC will not cut production at its next meeting on March 15.

Energy stocks were broadly lower on Monday. The iPath Goldman Sachs Crude Oil (OIL Quote) ETF closed down 2.6% at $36.53.

El Paso(EP Quote) was upgraded by Matrix Research from strong sell to buy. Its stock closed down 1% at $13.84. Last week, Moody's announced that it was assessing the company for possible upgrade after it sold its ANR pipeline for $4 billion.

Chesapeake Utilities(CPK Quote) was upgraded by Robert W. Baird from neutral to outperform. Its stock rose 1.4% toi close at $29.90.

Shares of World Fuel Services Corp(INT Quote) were upgraded by Calcyon Securities from add to buy. Its stock closed up 4.3% at $42.32. Crosstex Energy(XTEX Quote) was upgraded by Credit Suisse from underperform to neutral. Shares of Crosstex closed up 1.3% at $34.55.

ATP Oil and Gas(ATPG Quote) was downgraded by RBC Capital Markets from outperform to sector perform. RBC reduced its price target for ATP from $50 to $37. Shares of ATP closed down 6.9% at $35.91.

Atlas Pipeline Holdings(AHD Quote) was downgraded by Wachovia from outperform to market perform. The company's stock clsoed 2.6% lower at $25.09.