Energy prices swing with changing influences

Sam Fletcher
Senior Writer

Energy futures prices fluctuated strongly Mar. 22-24 in reaction to a succession of different influences that caused markets first to fall and then to rebound.

Prices plunged Mar. 22 with the May contract for benchmark US light, sweet crudes falling by $1.43 to $56.03/bbl on the New York Mercantile Exchange, the biggest single-day loss in more than a month, as traders took profits from the recent run to record levels. Commodity prices plummeted more Mar. 23 as speculators, particularly institutional investors, pulled out of that market following a resurgence in the value of the US dollar against other major currencies. The May contract fell further to $53.81/bbl, the biggest loss in 3 months.

Paul Horsnell, Barclays Capital Inc., London, said the same day that speculative unhedged money flows had swung heavily to the long side of the market where investors are obligated to take delivery when contracts expire. "In all, the rapid build-up in those positions leads us to expect that a move down could gain some momentum once set in progress," Horsnell said.

The sell-off by speculators was encouraged by a report by the US Energy Information Administration that commercial US crude inventories shot up by an unexpected 4.1 million bbl to 309.3 million bbl in the week ended Mar. 18, the fourth consecutive week of gains above 2 million bbl. However, US gasoline stocks plunged by 4.1 million bbl to 217.3 million bbl in that same period. Distillate fuel stocks fell by 2.8 million bbl to 104.5 million bbl. US imports of crude increased by 229,000 b/d to nearly 10.3 million b/d during the same week. Input of crude into US refineries decreased by 150,000 b/d to 15 million b/d, with refineries operating at 90.2% of capacity.

That indicated US demand remains strong, led by distillates, said Horsnell. "The key Mid-Atlantic States are now running pretty empty, below 10 million bbl of heating oil," he said. "The only real weakness in the latest data lies on the crude oil side, where inventories have just started to climb faster than normal from the already higher than normal base. This is an almost inevitable result of there having been a consistent 60-70¢ contango [with futures market prices in succeeding delivery months progressively higher than in the nearest delivery month]," Horsnell said. "Until that contango is shocked away, there will be continuing pressure to build relative to normal because of cash-and-carry arbitrage."

Prices rebound
However, energy prices rebounded Mar. 24, following an explosion and fire on Mar. 23 that damaged an isomerization unit at BP PLC's refinery at Texas City, Tex., killing 15 people and injuring more than 100. That unit had been shut down for maintenance turnaround and was in the process of being brought back online at the time of the accident. The refinery remained in operation despite damage to the unit.

Nonetheless, NYMEX gasoline for April delivery hit an intraday high of $1.608/gal in electronic trading before settling at $1.5992/gal, up by 2.43¢ on Mar. 24 after losing a total 3.37¢/gal in the previous two sessions. The May crude contract also regained $1.03 to $54.84/bbl as traders scrambled to cover short, or previously sold, positions ahead of the long Easter holiday weekend.

One of the lessons behind those strong market fluctuations is that the strength—or more particularly, the weakness—of the US dollar against the euro and yen remains a major factor in the oil futures market, which some investment funds are using as a hedge against the dollar. The value of the dollars that they receive in payment for their crude also influences the euro buying power of members of the Organization of Petroleum Exporting Countries.

Also, the supply-demand balance of crude and petroleum products is so tight that even the threat of a possible disruption at a major refinery is enough to trigger a quick reverse in market trends. With US refineries running at nearly full capacity in recent years, the threat of such mishaps remains strong.

Record rig count
US drilling activity hit a 19-year high this week with 1,331 rotary rigs working, Baker Hughes Inc. reported Mar. 24. That was 11 more than the previous week, up from 1,150 a year ago, and the highest weekly total since late February 1986, when 1,376 rigs were drilling.

Meanwhile, analysts at Raymond James & Associates Inc. report a tightening market for oil country tubulars, with prices up by $65/ton early this year. That could signal a physical limit to the surge in drilling activity.

(Online Mar. 28, 2005; author's e-mail: samf@ogjonline.com)


Related Articles

MARKET WATCH: NYMEX crude oil price jumps more than $2/bbl

02/13/2015 Crude oil prices on the New York market jumped by more than $2/bbl Feb. 12 to settle above $51/bbl, which analysts attributed to more oil and gas c...

Apache’s 2015 capital budget less than half of last year’s $8.5 billion

02/12/2015 Apache Corp., Houston, plans a capital budget of $3.6-4 billion in 2015, with $2.1-2.3 billion directed toward onshore North America and $1.5-1.7 b...

Total reduces budget by 10% to $23-24 billion

02/12/2015 Total SA plans to lower its organic investments to $23-24 billion in 2015 from $26.4 billion in 2014 by reducing spending in brownfield development...

MARKET WATCH: NYMEX crude prices drop back below $50/bbl

02/12/2015 The New York Mercantile Exchange March crude oil contract dropped $1.18 on Feb. 11, closing at $48.84/bbl. The April contract dropped $1.15 to $50....

US House vote sends Keystone XL approval bill to Obama’s desk

02/12/2015 The US House of Representatives voted by 270 to 152 to pass S. 1, which would deem the proposed Keystone XL crude oil pipeline approved more than 6...

TransCanada challenges EPA’s comments on Keystone XL SEIS

02/11/2015 TransCanada Corp. responded to the Feb. 2 comment letter from the US Environmental Protection Agency on the US Department of State’s final suppleme...

PNR cuts capital spending nearly in half

02/11/2015 Pioneer Natural Resources Co. (PNR), Dallas, plans to spend $1.85 billion in 2015 following a fourth quarter in which the company reported a net in...

PACE survey finds 69% support for crude exports to trading partners

02/11/2015 More than two thirds of registered voters responding in a nationwide telephone survey commissioned by Producers for American Crude Exports (PACE) s...

EIA: US gasoline prices to average $1/gal less in 2015 vs. 2014

02/10/2015 US regular gasoline retail prices are expected to average $2.33/gal in 2015, down from $3.36/gal in 2014, according to the Energy Information Admin...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected