MARKET WATCH: Energy prices continue to climb

Sam Fletcher
Senior Writer

HOUSTON, Aug. 21 -- Energy prices climbed to nearly $115/bbl Aug. 20 as traders shrugged off a Department of Energy report that US crude inventories shot up 9.4 million bbl to 305.9 million bbl in the week ended Aug. 15—the largest weekly gain in more than 7 years.

The 10-year average for US crude stocks in that period is a draw of 717,000 bbl, said Michael C. Schmitz, Banc of America Securities LLC, New York "The higher-than-expected build was primarily driven by a 1.34 million b/d increase in imports to 11 million b/d and a further drop in refinery utilization, which declined 0.2% to 85.7% vs. consensus for a 0.4% increase (OGJ Online, Aug. 20, 2008). Refinery utilization has averaged 86.3% year-to-date, 260 basis points below the same period last year," he said. Crude inventories of 305.9 million bbl, which equate to 20.4 days of demand coverage, are 9.3% below last year and 1.9% below the 10-year average.

The fourth consecutive larger-than-expected draw on US gasoline stocks for the same week "was largely due to higher blend stock demand of 1.2 million b/d vs. 980,000 b/d in the prior week," said Schmitz. "This was partially offset by higher production with a 1.5% improvement in yield more than offsetting the small decline in refinery utilization. Four-week average gasoline demand was 1.9% lower. Gasoline inventories of 196.6 million bbl, equivalent to 20.8 days of demand coverage, are currently 0.2% above last year but 2.8% below the 10-year average," he said.

At Pritchard Capital Partners LLC, New Orleans, analysts reported crude futures climbed to a week-long high above $117/bbl in overnight trading Aug. 21. "Front-month West Texas Intermediate barely eked out a gain yesterday, as traders appeared to grapple with the differing information presented in the US Department of Energy's latest round of inventory data," they said. "Slow recovery began by the close however, with the bulls rallying around another Goldman Sachs [Group Inc.] signal, saying they think crude will hit $149/bbl by yearend. That bullish mentality is still present this morning, particularly in the refined products arena, bolstered by dollar weakness and the ongoing conflict between Georgia and Russia."

Analysts in the Houston office of Raymond James & Associates Inc. said, "Tensions between Russia and the West have risen following the US missile shield agreement with Poland. Political uncertainty with Russia, one of the largest oil and natural gas suppliers to Organization for Economic Cooperation and Development countries, and the possibility of Saudi Arabia cutting back supplies has helped crude bounce from its recent lows."

However, Olivier Jakob at Petromatrix, Zug, Switzerland, said the latest $149/bbl prediction "is an attempt at countering the negative sentiment provided by the other Goldman Sachs analysts turning bullish [on] the dollar last week, but also because most of the fundamental inputs they provide has changed since they wrote the report (China is sharply reducing import of products, the Baku-Tbilisi-Ceyhan pipeline is repaired, higher than expected DOE build)."

Jakob said, "A tight oil market is still simply a situation where high demand for products is leading refineries to run at maximum capacity and by doing so pulling so much crude that it pushes the Organization of Petroleum Exporting Countries to run at maximum capacity. That has been the case in the past but today we are still in a situation where low product demand is leading refineries to run at minimum capacity and pushing crude oil away."

He said, "The higher than expected stock build in the DOE report is a storm correction of the lower than expected builds of the last 2 weeks and the general trend in the DOE statistics has not changed: the US remains within its normal days-of-cover pattern. Days-of-cover on gasoline is coming off, but it is a seasonal pattern during August, the next seasonal pattern is for the same gasoline days-of-cover to increase in September on the back of the seasonal drop in demand. On the 4-week average, US oil demand is down 885,000 b/d vs. last year, refinery runs are lower by 919,000 b/d (the lowest level for this period since 1997), but crude oil imports are unchanged from a year ago. Hence last year we were drawing 7 million bbl of crude oil over the last 4 weeks, we were building by 10 million bbl this year, and the balances point to the risk of more stock builds. In the global balances, the BTC interruption has taken close to 20 million bbl out of the market, but the Brent contango is wider than at the start of the BTC fire."

Meanwhile, Paul Horsnell, Barclays Capital Inc., London, warned, "OPEC is now heading for an output cut, and potentially a very large one, when it next meets Sept. 9." He said, "Only a price rally back to well above $120/bbl is likely to be able to halt a substantial removal of OPEC crude output from the market."

Horsnell said Aug. 20, "Over the past week, while it has risen in euro terms, the value of the OPEC basket has moved down to $108.26/bbl, its lowest level since the first couple of days in May." The average price for OPEC's basket of 13 reference crudes gained $1.51 to $109.77/bbl when the market closed Oct. 20. Horsnell said, "OPEC policy response and rhetoric is often as much a function of the momentum and direction of prices as it is of specific price levels. However, under current circumstances we would expect that given the speed of recent falls, a move below $100/bbl for the value of the OPEC basket would represent a matter for major concern for most of the key ministers, and a move below $90/bbl would be likely to be considered as something of a crisis. Indeed, at current price levels or lower, we would see it as inevitable that OPEC will seek to reduce its output and its target ceiling at the September meeting."

The latest Monthly Oil Market Report from the OPEC Secretariat "provides a list of factors that together would seem to make a cut almost inevitable," said Horsnell. "It states that the risks to the outlook are on the downside, that non-OPEC output is about to surge, that OPEC is already producing well above the call on its crude, that the demand outlook is worsening, that the global economic situation is deteriorating rapidly, and that speculators are now short (and a speculative attack can often be the decisive red rag to ministers)."

Energy prices
The September contract for benchmark US sweet, light crudes traded at $112.61-117.03/bbl Aug. 20 before closing at $114.99/bbl, up 45¢ for the day on the New York Mercantile Exchange. The October contract gained $1.02 to $115.56/bbl. On the US spot market, WTI at Cushing, Okla., was up 45¢ to $114.98/bbl. Heating oil for September delivery increased by 3.98¢ to $3.16/gal on NYMEX. The September contract for reformulated blend stock for oxygenate blending (RBOB) advanced 4.64¢ to $2.91/gal.

The September natural gas contract escalated 10.1¢ to $8.08/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 18.5¢ to $8.03/MMbtu. Pritchard Capital analysts said, "Despite the 18.9¢ 2-day gain, some market watchers still see lower prices ahead. Natural gas futures were supported by crude and heating oil, which both ventured higher Wednesday."

The DOE's Energy Information Administration reported the injection of 88 bcf of natural gas into US underground storage in the week ended Aug. 15. Working gas in storage is now at 2.7 tcf, 264 bcf less than at this same time last year but 26 bcf above the 5-year average.

In London, the October IPE contract for North Sea Brent crude gained $1.11 to $114.36/bbl. Gas oil for September dropped $6 to $1,004/tonne.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

TAEP: TPI still peaking, but ‘contraction unavoidable’ as oil prices fall

12/12/2014 The Texas Petro Index (TPI), a composite index based on a comprehensive group of upstream economic indicators released by the Texas Alliance of Ene...

MARKET WATCH: NYMEX crude oil price extends slump

12/12/2014 Crude oil prices extended their slump on the New York market with a Dec. 11 settlement of less than $60/bbl for January, and prices continued downw...

US needs more data before ending crude export ban, House panel told

12/11/2014 Much more environmental impact information is needed before the US can reasonably remove crude oil export limits, a witness told a House Energy and...

Rosneft, Essar sign terms of oil supply agreement

12/11/2014 OAO Rosneft and Essar Energy PLC have signed key terms of an oil supply agreement in New Delhi. Rosneft said shipments to India may begin in 2015.

Barton introduces bill to remove US crude export limits

12/11/2014

US Rep. Joe Barton (R-Tex.) introduced legislation that would remove US crude oil export limits that have been in place for nearly 40 years.

MARKET WATCH: NYMEX crude oil price slides below $61/bbl

12/11/2014 Crude oil prices fell below $61/bbl for January delivery on the New York market Dec. 10 after the Organization of Petroleum Exporting Countries low...

MARKET WATCH: US crude oil prices rebound modestly awaiting inventory report

12/10/2014 Crude oil prices rose modestly on the New York market Dec. 9 while analysts awaited the US government weekly inventory report on crude oil and prod...

ExxonMobil forecasts 35% higher world energy demand by 2040

12/10/2014 A significantly bigger global middle class, expanded emerging economies, and 2 billion more people will contribute to 35% higher world energy deman...

MARKET WATCH: Crude oil prices briefly dip to 5-year lows

12/09/2014 Oil prices on the New York and London markets remained volatile, briefly trading around lows not seen since 2009 although prices were attempting to...

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