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Warm Weather Drives Down Oil

Simon Constable

Energy prices were mostly slipping Monday as the prospect of mild weather across much of the U.S. this week had traders concerned that demand would be soft.

Contracts for light sweet crude lost $1.14 to close at $58.91 a barrel on the New York Mercantile Exchange, while natural gas futures fell 17 cents to $6.91 per million British thermal units.

Heating oil lost 3 cents to $1.68 a gallon, but gasoline added a penny to close at $1.91 a gallon.

"It is warm and it is going to be very warm indeed across much of North America this week," writes Dennis Gartman, editor of The Gartman Letter. He also notes that the term structure for oil prices, with significantly higher prices in the distant future compared with the near contracts, indicates that there are "ample above-ground supplies."

Meanwhile, energy market observers will no doubt be waiting to see what happens Thursday when representatives of the OPEC cartel meet in Vienna to discuss the state of the oil market. Member countries of the organization haven't always adhered to previous mandated output cuts that have been aimed at bolstering prices.

Oil services company Halliburton(HAL) was making the news with an announcement it would shift its headquarters to Dubai from Houston.

"[The] move also illustrates the growing importance of national [Middle Eastern] oil companies to the large global services companies," writes Alan Laws, an analyst at Merrill Lynch in New York. "Many may see it as an attempt to more closely mimic Schlumberger (the most multinational oil service company)."

Shares of Halliburton were gaining 0.7% recently.

The energy exchange-traded funds were falling in line with futures prices, with the U.S. Oil(USO) ETF and the iPath Goldman Sachs Crude Oil Index(OIL) ETF both off about 1.5% in recent action.

Major oil concerns were mixed. Exxon Mobil (XOM) was barely changed and Chevron (CVX) was ahead by 1%, while ConocoPhillips (COP) slipped 0.5% and BP (BP) gave up 0.3%.

Elsewhere in energy-related matters, Francisco Blanch, a commodity strategist at Merrill in London, notes that emissions credits prices have been falling and "volatility has surged to extreme levels."

"[An] initial overallocation of permits, warmer and wetter-than-normal weather conditions, together with sharply lower U.K. natural gas prices, have contributed to exacerbate the selloff," he states in a recent report

The credits give holders the right to emit a given tonnage of carbon dioxide into the atmosphere, generally as a byproduct of burning fossil fuels such as oil or natural gas.

The overall price for credits has plunged 94% since last September, Blanch says.