Supply fears influence markets

Sam Fletcher
Senior Writer

The June contract for benchmark US light, sweet crudes topped $65/bbl in intraday trading May 17 on the New York Mercantile Exchange as unexpected shut-ins of US refining capacity "sent shock waves through the markets," analysts said.

Among the disruptions that week, BP PLC said it might delay the restart of a 52,000 b/d gasoline-production unit at its Toledo refinery in Ohio. ConocoPhillips announced it shut in one of three crude units at its 194,000 b/d refinery in Ponca City, Okla., ahead of scheduled turnaround, and that some units at its Sweeny, Tex., refinery were operating at reduced rates. Valero Energy Corp. shut in 64,000 b/d of gasoline production at its Houston refinery for a week.

Meanwhile, analysts in the Houston office of Raymond James & Associates Inc., said, "Above-average weekly gasoline inventory draws this year have left traders skittish regarding gasoline supplies, now 7% below the 5-year average, as we quickly approach this summer's driving season" at the end of May. The American Automobile Association reported the US average retail price for regular unleaded gasoline gained 1.5¢ to a record high of $3.129/gal on May 18, just a week before the US Memorial Day weekend. US pump prices for regular gasoline had advanced 26¢/gal total within 30 days.

The June crude contract traded as high as $65.09/bbl on May 17 before closing at $64.86/bbl, up by $2.31 for the day. The June contract for reformulated blend stock for oxygenate blending (RBOB) jumped by 9.96¢ to $2.44/gal the same day, but it dropped to $2.41/gal in profit taking on May 18. Crude continued climbing to $64.94/bbl.

At that point, crude prices had remained above $60/bbl for almost 2 months on the New York market, despite a high degree of volatility from session to session. "We continue to believe that rising global demand, coupled with minimal excess production capacity from the Organization of Petroleum Exporting Countries and increasing visibility of geopolitical risks, are likely to drive oil prices even higher as 2007 progresses," said Raymond James analysts.

Moreover, the North Sea Brent crude contract on the International Petroleum Exchange—now viewed by many as a more accurate benchmark than US crudes on NYMEX—rallied above $70/bbl, representing a $5/bbl premium to benchmark US crudes. In London, the new front-month July IPE contract for Brent crude jumped by $2.30 to $70.27/bbl on May 16 but fell back to $69.43/bbl during profit taking in the next session.

Meanwhile, the value of the US dollar fell against that of most other major currencies after China widened the band in which the yuan can fluctuate against the dollar. That means that crude, which is priced universally in dollars, is cheaper outside the US economy, and similarly reduces OPEC's oil revenue vs. the euro paid for European goods.

Natural gas
Natural gas futures rose above $8/MMbtu May 17 on NYMEX "on fund buying," said analysts at Enerfax Daily. "Speculative traders have been trying to push the market above $8[/MMbtu] but have found higher prices difficult to sustain amid mild weather," the analysts said. Investment funds wanted to escape from the trading range so technical market triggers would kick in to force prices higher. Hedge funds, who had been betting that the price of June natural gas futures would fall, had to buy long positions ahead of warmer weather, analysts said.

The June natural gas contract traded as high as $8.14/MMbtu in the NYMEX session before closing at $8.08/MMbtu, up 18.5¢ for the day. On the US spot market, gas at Henry Hub, La., gained 10¢ to $7.71/MMbtu. On May 18, prices dropped to $7.94/MMbtu on NYMEX but climbed to $7.89/MMbtu at Henry Hub.

Raymond James analysts reported, "[LNG] imports to the US continue to come in at elevated levels as a result of the remaining supply overhangs in Asia and Europe. However, we believe that increased gas demand fueled by a rising price incentive to burn natural gas over crude derivatives, combined with increased liquid stripping and declining imports from Canada should help offset the increase in [LNG] imports during this injection season."

Analysts at Enerfax Daily said Canadian gas supplies to the US in June may be 600 MMcfd below last year's levels. "Companies cut their drilling budgets last year as prices dipped and well costs soared," they said.

Meanwhile, Raymond James reported May 17, "The natural gas 12-month strip has reached $9/Mcf for the first time in over 8 months; and as such, gas producers can now hedge winter 2007-08 volumes at an appetizing price of over $10/Mcf."

(Online May 21, 2007; author's e-mail: samf@ogjonline.com)

Related Articles

Magellan, PAA form Saddlehorn crude pipeline joint venture

02/27/2015 Magellan Midstream Partners LP and Plains All American Pipeline LP have formed Saddlehorn Pipeline Co., a 50-50 limited liability joint venture, to...

Planned, unplanned maintenance under way at Venezuelan refineries

02/27/2015

Petroleos de Venezuela SA (PDVSA) is conducting both planned and unplanned maintenance work at three of its Venezuelan refineries.

Recent CSIS report outlines main US oil infrastructure challenges

02/27/2015 The US crude oil renaissance has created strong demand for expanded US transportation systems, resulting in five primarily challenges, a recent Cen...

PetroChina mulling sale of its stake in Arrow CSG

02/27/2015

PetroChina is reportedly considering selling its half of Arrow Energy’s Queensland coal seam gas (CSG) resources.

Shell’s Pearl GTL plant enters planned maintenance

02/27/2015 Qatar Shell Ltd., a unit of Royal Dutch Shell PLC, has started a scheduled maintenance turnaround on one of two identical production trains at its ...

MARKET WATCH: NYMEX crude oil prices swing down again

02/27/2015 The contract for US light, sweet crude oil for April delivery plunged by more than $2.80/bbl on the New York market Feb. 26 as volatility sent crud...

Low crude prices pressure Latin American producers, CSIS forum told

02/26/2015 Depressed crude oil prices are putting new pressure on Latin American producing countries to improve terms if they expect to attract outside invest...

Petroleum detected in fish tested after Yellowstone River pipeline spill

02/26/2015 Detectable levels of petroleum were found in tests of fish pulled from the Yellowstone River downstream from a broken petroleum pipeline near Glend...

Suriname bid round draws lackluster response

02/26/2015 The dramatic fall in oil prices is being blamed for the lack of interest shown by international oil companies (IOCs) in the deepwater offshore Suri...
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