Marching to $100/bbl oil

Sam Fletcher
Senior Writer

When the front-month crude futures contract fell $3.45 to $91.17/bbl Nov. 13—the lowest level in nearly 2 weeks on the New York Mercantile Exchange—after the International Energy Agency reduced estimates of global oil demand for the fourth quarter through 2008, many analysts declared the march to $100/bbl oil had finally fizzled. Imagine their surprise when the January crude contract jumped $3.39 to a record closing of $98.03/bbl Nov. 20, climbing as high as the Nov. 7 record of $98.62/bbl in intraday trading. The price continued climbing to $99.29/bbl in early electronic trading Nov. 21 before closing at $97.29/bbl, down 74¢ for the day on NYMEX. But the push for $100/bbl oil may not be over.

The volume of crude traded Nov. 19 on the New York market was "the lowest level of the last 55 trading days," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, in a Nov. 21 report. In a low-volume, preholiday market, a large pension fund buying oil assets with the weaker dollar could trigger a rally.

Analysts in the Houston office of Raymond James & Associates Inc. blamed the record-low weakness of the US dollar for driving up crude prices. "Credit spreads widened following the Federal Reserve's cut in its growth outlook for next year to a growth of only 1.8-2.5%. This, coupled with the US 10-year Treasury yield falling below 4% for the first time since 2005, sunk the dollar to a new record low [of] $1.4850 vs. the euro," they said.

Moreover, Raymond James said, "Oil was trading up premarket on expectations of colder weather in the Northeast and supply setbacks in Canada and Mexico." Fire damaged a 155,000 b/d oil sands upgrader at Royal Dutch Shell PLC's Scotford refining complex near Edmonton, Alta., on Nov. 18. The upgrader and Shell's adjacent 98,000 b/d refinery were operating at reduced rates Nov. 20. Oil produced by the upgrader is processed through the refinery.

Dollar value
However, analysts at Barclays Capital Research, a division of Barclays Bank PLC, London, claim the weakness of the dollar against other currencies has limited effect on oil markets. "A widespread misconception is that the value of the dollar and the price of oil are linked by a clear indirect relationship. This belief has grown stronger over the past 3 months fueled by the simultaneous acceleration in the fall of the greenback and the move up in oil prices. In our view, the relationship between the two is far more tenuous that many might think. Firstly, there is no evidence that periods of dollar weakness are associated with higher oil prices, and, historically, a wide range of behavior has been displayed," they reported Nov. 21.

"Arguably, a weaker dollar makes oil cheaper for nondollar consumers, whereas it squeezes profits for non-US producers, which should prove supportive for prices over time," said Barclays analysts. "While the magnitude of the effect is far from clear, its transmission would involve substantial time lags. Refiners are often insulated from fluctuations in the value of the dollar as both their inputs and outputs are denominated in the same currency, and any knock-on effect induced by higher-end user demand would likely be in the region of quarters and years rather than days. On these grounds we see very little substance to those explanations which base the latest move-up in oil prices on the deterioration of the dollar, and by contrast we see the tightening of the physical market balance as having a far better explanatory power."

They predicted, "Severe constraints on the supply side and limited room for maneuver by the Organization of Petroleum Exporting Countries in the short term will keep prices vulnerable to supply disruptions and a faster-than-expected erosion of the inventory cover."

OPEC's summit meeting Nov. 17-18 in Riyadh was only the third meeting of member heads of state in the group's 47 years. At that meeting, President Hugo Chavez of Venezuela and President Mahmoud Ahmadinejad of Iran urged that the cartel quit pricing its oil in US dollars in favor of a basket of stronger currencies. Saudi Arabia opposed that move.

Analysts at Barclays Capital Research see little chance for such a change. "It would necessitate a major overhaul of the existing pricing system, given that OPEC crudes are currently priced in terms of dollar adjustments from dollar-denominated benchmarks. The absence of non-US dollar alternatives (the only exception being the yen-denominated contracts traded on the Tokyo Commodity Exchange) would therefore require moving away from current market mechanisms and setting up a brand new pricing system, which we believe is unfeasible," they said.

(Online Nov. 26, 2007; author's e-mail:

Related Articles

EIA: US oil output fell 50,000 b/d in May

07/07/2015 Total US crude oil production dropped 50,000 b/d in May compared with April and is expected to continue falling through early 2016 before growth re...

Croatian refinery lets contract for upgrading project

07/07/2015 Croatia’s INA Industrija Nafte DD (INA) has let a contract to Findland’s Neste Jacobs Oy to provide project management consultancy (PMC) for a resi...

Obama urged by IPAA president to lift ban on US crude exports

07/07/2015 Commending the administration for its actions allowing some condensate to be exported as a petroleum product, Independent Petroleum Association of ...

AER shuts in 16 Murphy Oil sites in Peace River region for noncompliance

07/07/2015 Alberta Energy Regulator said it has shut in or partially shut in 16 sites operated by Murphy Oil Co. Ltd. in the Peace River region. The sites wer...

MARKET WATCH: NYMEX, Brent oil prices take dive on world oil oversupply concerns

07/07/2015 US light, sweet crude oil prices plummeted more than $4/bbl on the New York market July 6, marking a 5-month low, while Brent crude oil prices on t...

Production ramps up from Sunrise oil sands project

07/06/2015 Husky Energy Inc., Calgary, reported that 25 well pairs are now on production at its Sunrise oil sands project in northeastern Alberta. Steaming is...

South Africa’s Enref refinery due maintenance

07/06/2015 Engen Petroleum Ltd. will shut down its 125,000-b/d Enref refinery in Durban, South Africa, for planned maintenance beginning on July 9, the compan...

Buru awarded onshore Canning licenses

07/06/2015 Buru Energy Ltd., Perth, and Mitsubish Corp. have been granted two production licenses for Ungani oil field in the onshore Canning basin of Western...

Cenovus sells royalty business for $3.3 billion

07/06/2015 Cenovus Energy Inc., Calgary, inked an agreement to sell its wholly owned subsidiary Heritage Royalty LP to Ontario Teachers’ Pension Plan for gros...
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