MARKET WATCH: Crude tops $77/bbl in intraday trading

Sam Fletcher
Senior Writer

HOUSTON, Sept. 7 -- The front-month crude contract temporarily jumped above $77/bbl Sept. 6, the highest intraday price level since Aug. 1 in the New York market, as US inventories of oil and gasoline continued to decline.

The Energy Information Administration reported benchmark US crude fell 3.9 million bbl to 329.7 million bbl in the week ended Aug. 31. Gasoline stocks dropped 1.5 million bbl to 191.1 million bbl in the same week, well below average for this time of year. Distillate fuel inventories increased by 2.3 million bbl. to 132.2 million bbl (OGJ Online, Sept. 6, 2007).

"US crude inventories have now fallen below last year's inventory levels for the first time in 12 weeks," said analysts in the Houston office of Raymond James & Associates Inc.

Paul Horsnell at Barclays Capital Inc. in London, said, "US gasoline inventories fell further below the seasonal norm, to a new 2-year low in absolute terms and to a new all-time low in terms of days of forward demand."

However, Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, noted a build of crude stocks in Cushing, Okla., storage—"…the first substantial build since April," he said. "More importantly the Cushing build is happening despite the front West Texas Intermediate spreads [being] at a multiyear high backwardation (for the season)."

Moreover, Jakob said oil imports from Canada into Petroleum Administration for Defense District 2 [the US Midwest including Oklahoma] were 190,000 b/d higher in August than in July, resulting in a rebound of stocks. "With refinery maintenance in PADD 2 during September and higher Canadian crude oil production, the flag remains for further stock build in the Midwest, which does not correlate with the current level of WTI backwardation. The Cushing statistics are the first serious alarm bells in many weeks for the WTI backwardation, which will be in greater danger if the Cushing trend is confirmed next week," he said.

Horsnell also noted the consolidation and "recent further firming" of backwardation, with futures contracts each priced lower further out. "The depth of the contango [a reverse situation, with subsequent monthly contracts priced higher further out] 3 months ago would have made it almost impossible to increase output, with the front to second month contango standing at $1.13/bbl and the prompt to 2 years out contango standing at $5.68/bbl," he said. "Now that structure has completely flipped over, with front month WTI trading $1.06 above second month, and the prompt to 2 years out spread now a backwardation of $6.38/bbl. Other things being equal, that scale of switch into backwardation does make it easier to increase output," he said.

OPEC outlook
Raymond James analysts said crude prices were higher in early trading Sept. 7 as traders tried to anticipate what ministers of the Organization of Petroleum Exporting Countries may do at their upcoming Sept. 11 meeting in Vienna. "Several of the oil ministers…have publicly stated they are in favor of not changing current production quotas. However, the [Paris-based] International Energy Agency has been very vocal about OPEC's need to increase production as worldwide crude inventories continue to fall," they said.

The odds on the outcome of the OPEC meeting have shifted several times in the last 3 months. Horsnell said, "Two weeks ago, [OPEC] ministers would have been able to state…that the market was well supplied, prices were in bounds, and then walk away. That appears to be a less comfortable option now" with "prices poised to set new all-time highs." He said, "Unless prices fall back sharply in coming days, ministers may wish to show the market something in terms of volumes, even if it is only the prospect of delayed output increases."

Horsnell reported Sept. 6 that the OPEC basket price had increased for 10 straight days, "gaining a shade under $5 in rising to $71.39/bbl, which is less than $2.50 below its all-time high." He said, "At the time of writing, WTI is above $76/bbl, and complete ministerial inaction would most likely mean not only new all-time highs being set, but highs well into the $80s and perhaps beyond. In other words, to stay put when prices are above $77/bbl, as a minister, one would have to be very sure of some downbeat balances projections, and very worried indeed about the potential for subprime contagion. Overall, it could be considered somewhat extraordinary if price levels were not enough to at least spark an active discussion on the potential roadmap for increasing output."

Meanwhile, there were reports Sept. 6 that Syria fired on Israeli aircraft that allegedly violated Syrian airspace.

Also, meteorologists were still watching for possible storm development a disorganized area of low pressure over the western Atlantic near Bermuda as it drifts to the northwest.

Energy prices
The October contract for benchmark US light, sweet crudes traded as high as $77.43/bbl on Sept. 6 before closing at $76.30/bbl, up 57¢ for the day on the New York Mercantile Exchange. The November contract escalated by 64¢ to $75.31/bbl. On the US spot market, WTI at Cushing was up 57¢ to $76.31/bbl. The October contract for reformulated blendstock for oxygenate blending (RBOB) dropped 2.48¢ to $1.97/gal on NYMEX. However, heating oil for the same month gained 3.69¢ to $2.14/gal.

"The RBOB crack is correcting back to winter values, bringing the gasoline to heating oil premium back to maximum distillate mode and keeping the 3-2-1 refinery margins under pressure," Jakob said.

The October natural gas contract fell 15.5¢ to $5.65/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., shot up 20¢ to $5.95/MMbtu. "The EIA reported a 36 bcf injection pushing natural gas storage levels to over 3 tcf in August, for the first time ever. With the summer weather expected to moderate going forward and the current lack of hurricane activity, look for continued weakness in the natural gas market as we near the end of this injection season," Raymond James analysts said.

Enerfax Daily analysts reported, "A heat wave in the West pushed up demand for electricity from natural gas-fired generators to power air conditioners, yet producers managed to expand storage." They said, "Moving away from the summer heat, there is little to underpin the [gas] market."

In London, the October IPE contract for North Sea Brent crude increased 43¢ to $74.77/bbl. Gas oil for September gained $17 to $668/tonne.

The average price for OPEC's basket of 11 benchmark crudes was up 60¢ to $71.99/bbl on Sept. 6.

Contact Sam Fletcher at

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

Quicksilver Canada gets LNG export approval

07/02/2015 Quicksilver Resources Canada Inc. has received approval from the National Energy Board of Canada to export 20 million tonnes/year of LNG from a pos...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Origin lets contract for Otway basin fields

07/02/2015 Origin Energy Ltd., Sydney, has let a $1.3 million (Aus.) contract to Wood Group Kenny for provision of a detailed engineering design for the onsho...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

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
Available Webcasts

Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors


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