MARKET WATCH: Oil stock draw lowers energy prices

Sam Fletcher
Senior Writer

HOUSTON, June 26 -- An unexpected increase in US commercial crude inventories pushed down energy prices June 25, while the market shrugged off an anticipated decision by the Federal Reserve Board to maintain its 2% interest rate.

It was a "bloodbath" in early trading as crude and natural gas commodities and energy corporate stocks "were pounded," said analysts in the Houston office of Raymond James & Associates Inc. The bearish report on crude inventories "added to the profit-taking sentiment," they said. "However, the stocks and the commodities rallied to take back much of their losses later in the day. Crude is trading higher this morning, and recent strength can be attributed to a weaker dollar (following the Fed's decision not to raise interest rates) and Libya claiming it may cut production."

In terms of the number of commodity trades, however, Olivier Jakob at Petromatrix, Zug, Switzerland, said, "The oil markets are on holiday." He said recent market data showed a reduction in open interests, with the daily trading volume "down to rock bottom."

The Energy Information Administration reported inventories of benchmark US crudes increased for the first time in 6 weeks, up 800,000 bbl to 301.8 million bbl in the week ended June 20. The consensus on Wall Street was for another decline, with a 1.1 million bbl draw. Gasoline stocks dipped by 100,000 bbl to 208.8 million bbl during the same period, exactly as expected. Distillate fuel inventories increased 2.8 million bbl to 119.4 million bbl, exceeding Wall Street's call for a 1.8 million bbl build (OGJ Online, June 25, 2008).

Jakob said, "Middle distillate stocks have built by 10 million bbl over the last 4 weeks compared to being unchanged in the same period a year ago. Refiners are facing a reduction in demand (minus 680,000 b/d on the 4-week average; or 3.2%) and have product stocks in days of forward demand well within the range of previous year. Starting the hurricane season, there is no less stock cover than in previous years on products; the deficit is in crude oil stocks, but refiners know that the strategic petroleum reserve will be quickly released if needed on any storm disruption."

Analysts at Pritchard Capital Partners LLC, New Orleans, said, "There are once again significant worries about whether the US and other western countries are on the brink of recession. Financial markets are pointing toward a lower opening for equities, and high commodity prices are not necessarily viewed as a safe haven for money any more." They said, "Technicians largely believe that the remainder of June and all of July may be a torpid bull market rest stop before hurricane jitters and typical seasonal buying takes markets higher in the second half of the quarter."

Pritchard Capital analysts reported, "Yesterday was a rough day for spot products' markets, and it provided some breathing room for downstream marketers. But it also brought much more narrow refined products' margins, with gasoline output struggling to make break-even numbers in some areas, and diesel cracks constricting considerably. Gulf Coast gasoline is still talked around 13.75-14¢/gal off futures, which puts it only about $2.75/bbl above crude. Gulf Coast ultralow-sulfur diesel, once pegged some 20-30¢/gal over heating oil futures, has now witnessed that premium narrow to only about 0.5¢/gal." Moreover, they said, "The weakness spreads beyond petroleum. There are reports of substantial ethanol imports headed to US East Coast and Gulf Coast ports in the next 2 weeks. This could pressure ethanol values lower."

Oil and the economy
Crude prices will never hit $200/bbl as some market analysts have predicted "because the US economy would be broken before that happened," said Charles Biderman, chief executive of TrimTabs Investment Research Inc., an independent investment research firm in Sausalito, Calif., that provides trading strategies and investment insights to institutional investors.

"If oil prices hit $200/bbl, America's oil bill would be equal to a staggering 23% of the after-tax income of all Americans who pay taxes," Biderman said. When oil prices averaged $70/bbl in 2007, it cost US taxpayers just over $500 billion, or 8% of after-tax income. "At $135/bbl, America is already spending $1 trillion/year on oil, which is equal to 15% of after-tax income," said Biderman. "Such massive spending on oil alone is completely unsustainable."

Biderman urged the Commodity Futures Trading Commission to boost the margin requirements on oil futures to at least 25%. "The current margin requirements of no more than 7.5% must be increased to stem the speculation that has inflated oil prices," he said. "Stratospheric oil prices are destroying the US economy."

He disagreed with opponents' claims that high margin requirements would drive trading offshore. "What really worries officials of the New York Mercantile Exchange and the Intercontinental Exchange is that higher margin requirements would prick the oil bubble, reducing the huge revenue streams of their exchanges and traders," Biderman said.

Energy prices
The August contract for benchmark US light, sweet crudes traded at $131.95-$137.58/bbl June 25 before closing at $134.55/bbl, down $2.45 for the day on the on the New York Mercantile Exchange. The September contract dropped $2.44 to $135.08/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $2.40 to $134/bbl. Heating oil for July delivery lost 6.44¢ to $3.75/gal on NYMEX. The July contract for reformulated blend stock for oxygenate blending (RBOB) declined 6.94¢ to $3.39/gal.

One day prior to its expiration, the July natural gas contract fell 25.8¢ to $12.75/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 22.5¢ to $12.77/MMbtu. Pritchard Capital analysts said, "Mild weather and regulatory uncertainty were just two of the reasons circulating Wednesday to explain the 2-day combined decline of 45¢" for the front-month futures contract.

In London, the August IPE contract for North Sea Brent lost $2.13 to $134.33/bbl. The July contract for gas oil fell $33 to $1,206.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 benchmark crudes lost $1.47 to $129.87/bbl on June 25.

Contact Sam Fletcher at samf@ogjonline.com

Related Articles

Shell cuts $15 billion in spending for 2015-17

01/30/2015 Royal Dutch Shell PLC has curtailed more than $15 billion in potential spending over the next 3 years, but is not “not overreacting to current low ...

Chevron’s $35 billion capital budget down 13% from last year

01/30/2015 Chevron Corp. will allocate $35 billion in its capital and exploratory investment program for 2015, including $4 billion of planned expenditures by...

Oxy cuts capital budget by a third

01/30/2015 In the midst of falling oil prices, Occidental Petroleum Corp., Houston, expects to reduce its total capital spending for 2015 to $5.8 billion from...

MARKET WATCH: NYMEX natural gas prices drop after storage report

01/30/2015 US natural gas closed at its lowest price in more than 2 years on the New York market Jan. 29 following the government’s weekly gas storage report,...

PwC: Low oil prices might drive surge in restructuring in 2015

01/29/2015 Mergers and acquisitions (M&A) in the oil and gas industry hit 10-year highs in terms of deal value and volume in 2014, according to a report f...

DOE could meet 45-day LNG export decision deadline, Senate panel told

01/29/2015 The US Department of Energy would have no trouble meeting a 45-day deadline to reach a national interest determination for proposed LNG export faci...

API forms Colorado Petroleum Council, picks executive director

01/29/2015 The American Petroleum Institute has opened a Denver office that will focus on oil and gas priorities in Colorado. Tracee Bentley, who previously w...

ASMP report lists routes to shale-stimulated manufacturing rebound

01/29/2015 The US shale oil and gas renaissance has created a manufacturing rebound that could produce even more jobs and stimulate further economy growth wit...

ConocoPhillips revises down $2 billion from budget

01/29/2015 ConocoPhillips has shed an additional $2 billion from its capital expenditures for 2015, decreasing total spending to $11.5 billion from the previo...

White Papers

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

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Available Webcasts



The Future of US Refining

When 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



On Demand

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


Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


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