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

Kuwait lets storage contract for Clean Fuels Project

03/05/2015 Kuwait National Petroleum Co. (KNPC), through its subcontractors, has let a contract to CB&I, Houston, to build petroleum product storage as pa...

USW, Shell to resume talks amid ongoing labor strike at US refineries

03/05/2015 The United Steelworkers union (USW) and Royal Dutch Shell PLC, which serves as lead company for National Oil Bargaining negotiations, have agreed t...

Venezuela, Trinidad and Tobago sign energy accord

03/05/2015 Venezuela and neighboring Trinidad and Tobago have signed an agreement that will enable both countries to develop the Manakin-Cocuina natural gas f...

EIA: US petroleum product exports rise for 13th consecutive year

03/05/2015 US exports of petroleum products averaged a record 3.8 million b/d) in 2014—an increase of 347,000 b/d from 2013—based on data from the US Energy I...

MARKET WATCH: NYMEX prices rise on easing oil storage concerns

03/05/2015 Oil prices rose on the New York market Mar. 4 after a weekly US government oil and product report showed inventories at the Cushing hub in Oklahoma...

Senate vote to override Obama’s Keystone XL veto falls 5 votes short

03/05/2015 The US Senate’s vote to override President Barack Obama’s veto of legislation authorizing construction of the proposed Keystone XL (KXL) crude oil ...

ExxonMobil spending down 12% to $34 billion

03/04/2015

ExxonMobil Corp. plans $34 billion in capital spending during 2015, representing a 12% decrease from 2014.

Western Australia’s EPA approves Gorgon LNG fourth train

03/04/2015 The Environmental Protection Authority of Western Australia (EPAWA) has approved plans for expansion of the Gorgon-Jansz LNG project on Barrow Isla...

MARKET WATCH: NYMEX, Brent crude prices settle higher on Saudi oil hike

03/04/2015 Oil prices rose on the New York and London markets Mar. 3 after Saudi Arabia raised the official price for its oil by $1/bbl for US delivery and $1...
White Papers

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...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by
Available Webcasts

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


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

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