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

Severance tax would backfire, Pennsylvania association leaders warn

12/17/2014 Enacting a severance tax aimed at Pennsylvania’s unconventional natural gas activity would substantially harm the commonwealth beyond the industry ...

MARKET WATCH: Oil prices held steady on NYMEX awaiting crude inventory

12/17/2014 Oil prices held fairly steady on the New York market in Dec. 16 trading while Brent crude oil prices fell by more than $1/bbl on the London market....

Encana to focus spending on four core shale assets in 2015

12/16/2014 Encana Corp., Calgary, reported plans to spend $2.7-2.9 billion on its capital budget with roughly 80% of this total directed towards four of what ...

Cenovus trims budget, slows oil sands work

12/16/2014 Cenovus Energy Inc., Calgary, is trimming its capital spending in response to declining crude oil prices and will slow development of some of its t...

MARKET WATCH: Oil prices continue falling awaiting economic statistics

12/16/2014 Oil prices on the New York market dropped in Dec. 15 trading following reports of supply disruptions in Libya and awaiting reports of economic stat...

MARKET WATCH: OPEC basket price closes below $59/bbl

12/15/2014 The average crude oil basket price for the 12 members of the Organization of Petroleum Exporting Counties closed below $59/bbl on Dec. 12 while cru...

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...

White Papers

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

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

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


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

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