MARKET WATCH: Crude falls sharply in profit taking

Sam Fletcher
Senior Writer

HOUSTON, May 28 -- After gaining nearly 5% in a 4-session run up the previous week, crude prices dropped below $129/bbl in profit taking May 27 in the New York market.

Prices started the post-Memorial Day session by climbing higher but then begin to fall, with the decline continuing through the overnight session. "It looks like another volatile day in the oil trading pits, and if the overnight market is any indication prices are headed lower. Oil prices are tumbling [in early trading] in overseas and in US markets," said analysts May 28 at Pritchard Capital Partners LLC, New Orleans.

Olivier Jakob at Petromatrix, Zug, Switzerland, reported, "The price pattern in the open session [May 27] was actually very similar to the one seen on [May 22] and [May 23] and suggests preset profit-taking decisions rather than reacting to any immediate market inputs." The strengthening US dollar may have helped limit the fall in energy prices, however. The dollar got a boost against the euro with indications of a decline in German consumer confidence.

Meanwhile, Pritchard Capital analysts said, "More than a dozen US states now have retail [gasoline] prices that average more than $4/gal, and the US average sits within just a few cents of the same mark. Prices have never been this high. California has become the first state where diesel fuel prices average $5/gal." Moreover, data indicate Connecticut diesel prices will likely top the $5/gal mark May 28.

In other news, the Federal Highway Commission reported the lowest miles driven by US motorists during the month of March in the 66 years it has been doing that survey. March's driving figures also showed the steepest decrease ever recorded, or down 4.3% from the same month last year.

Political issue
Because of public outcry against high energy costs, Jakob said, "The price of oil has now become the No. 1 issue for politicians. On oil futures it is bringing a 'system risk' that did not exist a year or 2 months ago. US lawmakers are starting to pay greater scrutiny to commodity positions held by pension funds and investment banks, and pressure is increasing on the Commodity Futures Trading Commission for either changing the limit rule or at least bringing more transparency on these positions. Heads of pension funds are expected to be called soon to the Senate 'grill' like heads of oil majors were."

After hundreds of British truck drivers tied up traffic in London on May 27 in protest against rising fuel prices, UK Prime Minister Gordon Brown said only an international strategy would work in bringing oil prices down. In France fishermen blockaded ports in a similar protest, prompting French President Nicolas Sarkozy to propose a European Union cap on fuel sales tax.

As a result, there are now indications that the UK government may back away from earlier plans to increase road tax on higher-polluting cars and to increase the fuel tax. The UK now has the highest fuel duty in the European Union, with tax accounting for 65% of the pump price of petrol.

Two years ago Brown joined other European leaders in increasing taxes on large vehicles, fuel, plastic bags, and air travel in an effort to reduce carbon emissions 60% by 2050. Now Brown pledges global action on high oil prices will be the top topic at the Group of Eight (G8) July summit in Japan. Meanwhile, he is to meet senior oil industry executives in Scotland to discuss how to maximize production from the UK's depleting North Sea fields. Taxes should be a main point on that agenda. Brown increased taxes on North Sea production when he was chancellor.

With the current protests to reduce fuel prices, some observers are saying—perhaps prematurely—that the political power of the Green Party may be broken. Meanwhile, in a recent poll sponsored by the National Center for Public Policy Research, a conservative think tank and policy institute, found 65% of US residents don't want to spend even a penny more for gasoline in order to reduce greenhouse gas emissions. "The number rejecting raising gas prices in an effort to combat global warming has increased by 17 percentage points—or 35%—in just over 2 months," the center reported. Another 13% of those polled opposed more than a 5% increase in gasoline prices to reduce emissions. The survey also indicated 71% of US residents reject spending more for electricity, with 16% opposing spending any more than 12% extra for electricity for the same purpose.

Jakob said, "On the demand side, Taiwan is added to the list of countries going through the process of price revisions with an increase of 16% on diesel and 13% on gasoline. India should be the next country in line to lower internal subsidies. The problem is that these budgetary imbalances have not been created by $130/bbl but by $100/bbl oil and will likely be followed by more revisions."

Supply declines
Meanwhile, Indonesia said it will quit the Organization of Petroleum Exporting Countries by yearend because of its declining production, lack of investment, and the absence of major new discoveries. The country's production has dropped to 927,000 b/d this year from 1.7 million b/d in the early 1990s. Indonesia is the only Southeast Asia member of OPEC.

Iran's crude exports were down 200,000 b/d in a period through May 20. However, officials of the national oil company said the decline was seasonal and will be made up later.

Jakob reported, "The weekend attack on Nigeria is reported to have shut-in some 130,000 b/d of production" (OGJ Online, May 27, 2008).

Energy prices
The July contract for benchmark US light, sweet crudes dropped $3.34 to $128.85/bbl May 27 on the New York Mercantile Exchange. The August contract fell $3.30 to $128.94/bbl. On the US spot market, West Texas Intermediate was down $2.75 to $128.85/bbl. Heating oil for June delivery lost 6.64¢ to $3.80/gal on NYMEX. The June contract for reformulated blend stock for oxygenate blending (RBOB) dipped by 1.3¢ to $3.38/gal.

The June natural gas contract lost 5.6¢ to $11.80/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 25.5¢ to $11.85/MMbtu. Natural gas futures prices climbed during much of the May 27 session, peaking at $12.03/MMbtu just after midday. That triggered a round of selling that then brought the price down in the New York market. Pritchard Capital analysts said, "The last time prompt-month natural gas traded at $12 was in the wake of Hurricane Katrina 29 months ago on Dec. 23, 2005. That date is also significant because just 10 days earlier natural gas futures recorded their all-time high of $15.78/MMbtu." Meanwhile, it is less than a week away from the official start of the 2008 Atlantic hurricane season.

In London, the July IPE contract for North Sea Brent crude fell $4.06 to $128.31/bbl. The June gas oil contract dropped $20.75 to $1,258.75/tonne.

The average price for OPEC's basket of 13 reference crudes declined 66¢ to $125.91/bbl on May 27.

Due to the Memorial Day holiday this week, the Energy Information Administration will not present its weekly inventory data until May 29.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...

BP trims capital budget by $4-6 billion

02/03/2015 BP PLC plans an organic capital expenditure of $20 billion in 2015, down from the previous guidance $24-26 billion. Total organic capital expenditu...

IHS sees second-half end of US output surge

02/03/2015

Expectations are moderating about growth of oil production in the US this year.

Anadarko reports 2014 loss, remains upbeat about Wattenberg

02/03/2015 Anadarko Petroleum Corp. announced a 2014 net loss of $1.75 billion, or $3.47/share diluted, including a net loss of $4.05 billion associated with ...

CNOOC cuts capital budget, starts production from Jinzhou 9-3

02/03/2015 CNOOC Ltd. is slashing its capital budget for 2015 by 26-35% to $11.25-12.86 billion compared with last year’s budget. Capital expenditures for exp...

Seven Group buys into Beach Energy

02/03/2015 Media group Seven Group Holdings, Perth, has bought 13.8% of Adelaide-based Beach Energy Ltd. through share purchases fuelling speculation of a pos...

MARKET WATCH: NYMEX crude oil stays positive on lower rig count

02/03/2015 Oil prices on the New York and London markets closed higher Feb. 2 on positive momentum generated by a falling US rig count, suggesting cuts in pro...

Obama’s proposed fiscal 2016 budget recycles oil tax increases

02/02/2015 US President Barack Obama has proposed his federal budget for fiscal 2016 that he said was designed to help a beleaguered middle class take advanta...

Pessimism mounts over UK offshore industry

02/02/2015

Pessimism about the UK offshore oil and gas industry is gaining momentum.

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