Exxon Sell-Off Underlines Oil Market Muddle

PARIS () -- Oil markets have continued in their recent run of perplexing moves. As continued uncertainty surrounds the state of the post-Hurricane U.S. industry, new events are adding to the mix.

Category 5 hurricane Wilma is the strongest hurricane ever recorded by the U.S. national hurricane centre. It is moving north into the Gulf of Mexico. Most predictions are taking Wilma, the third major hurricane of the season, into Florida. Florida's oil industry does not compare to those of Louisiana or Texas. Florida has seventy operational wells but no refineries. It does however have over 5% of America's gasoline stations.

However experience from Hurricanes Katrina and Rita show that the actual landfall site remains unknown - often until just a few hours before arrival. This in itself should be a bullish factor on crude prices. Yet despite a rally earlier in the week the NYMEX crude price is some nine dollars off its Katrina highs.

Some analysts think the bearish pricing is missing the point.

"It's premature," said Bruce Evers of Investec Bank in London. "But there has been a big sell off in commodity shares in general. Not just in oil and gas but also in mining. If you look back over the last five years, the oil sector has tended to under perform in the fourth quarter."

Perhaps the biggest event of the oil week was the sell-off of $1.4 billion in Exxon Mobil shares [NYSE:XOM]. The finger is pointed at Goldman Sachs by analysts and the word on the street. But so far Goldman Sachs have refused to comment.

"Goldman Sachs did it," said Evers straight to the point. "It's obviously a very big U.S. institution taking a view that the run in the oil shares was over. But it's not surprising that there is profit taking, we are well into the final quarter and equity markets have been extremely difficult this year and oil shares are an area where there are substantial profits to be taken."

However it is still a moot point as to whether or not current market tightness will subside. Gulf of Mexico production has taken far longer to come back online than many politicians and media outlets contended at the height of the twin storms. Something Resource Investor anticipated some weeks ago.

To date only 55,756 barrels per day (bpd) of crude are being pumped from a pre-storm level of 203,138 bpd. That is just 27.5% of capacity. The U.S. Department of Natural Resources also pointed out that only 2 out of 53 interstate pipeline operators were back to full capacity. Forty remain completely closed and amazingly there are two operators who are completely unaccounted for.

With such confusion reigning over the oil market it is hard to see how such strong forecasts can be undertaken. The potential fall in demand from consumers is also greatly open to question.

Kevin Norrish of Barclays Capital, also in London, said that so called "demand destruction" simply is not taking place.

"Recent data from Asia suggests little evidence of any major demand destruction since Hurricanes Katrina and Rita. Data for Korean oil demand in September showed a 0.7% year-on-year increase accelerating from 0.2% in August, according to [the] Korea National Oil Corporation," he said.

This is also reflected in a new surge of demand coming from China.

"Last week's Chinese import data [showed] apparent demand growth for oil climbing to 4% in September," Norrish continued. "An acceleration from the zero growth rates seen for most of the year so far."

But still this has not dissuaded traders from raking in gains.

"It's partly profit taking but it's also people looking through to the New Year and thinking the oil price will fall and therefore it will pull oil [company] share prices with it," said Evers.

With the market in such a state of flux and Hurricane Wilma on the horizon every last aspect of the market is coming under closer and closer scrutiny. Including the machinations of the traders themselves.

"Also consider that commodity firms and hedge funds have made an awful lot of money this year," Evers pointed out. "They are coming up to the end of their financial year on which they will be judged and they are taking profits to ensure that they get a nice bonus. One simply cannot overlook that sort of thing."

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