MARKET WATCH: Crude rally fails to check losses

Sam Fletcher
Senior Writer

HOUSTON, Nov. 24 -- Oil futures prices climbed to the $50/bbl range Nov. 21, pulled by a late surge in the stock market on news that US President-elect Barack Obama will likely nominate New York Federal Reserve Pres. Timothy Geithner as Treasury secretary.

The new front-month January contract for benchmark US crude rose as high as $51.12/bbl in volatile intraday trading but still posted a 13% drop for the week. Meanwhile, job losses accelerated with the US Bureau of Labor Statistics reporting Nov. 21 that unemployment is up at least 2% over the past year in 12 states.

Paul Horsnell, Barclays Capital Inc., London, said Nov. 21, "A fresh set of lows were hit over the past week, with West Texas Intermediate at $49/bbl, the Organization of Petroleum Exporting Countries' basket at $44/bbl, and startlingly, the value of the Mexican export basket down to just $34/bbl."

WTI "continued in a freefall to test the lows of 2007 and lost $7.67/bbl in the week [ended Nov. 21], while [North Sea] Brent lost relatively less and was down $5.05/bbl on the week," said Olivier Jakob at Petromatrix, Zug, Switzerland. "On [Nov. 21] the OPEC basket stood at $42.56/bbl and the Mexican basket at $34.69/bbl."

In the New York market, Jakob said, "Heating oil for December was down $5.55/bbl and reformulated blend stock for oxygenate blending (RBOB) was closer to the losses on WTI and left $7.13/bbl [on] the tables. Natural gas was a bit higher and gained 2.6% on the week. WTI is now $48/bbl lower than a year ago and $97/bbl lower than the summer peak."

In the Houston office of Raymond James & Associates Inc., analysts said major market indices and commodities were priced higher in premarket trading Nov. 24 following the federal government's announced rescue package for financial giant Citigroup Inc. and the prospect of further supply cuts by OPEC. The US government will guarantee losses on $300 billion of Citigroup's assets and inject $20 billion of new capital into the bank.

"Furthermore, Venezuela and Iran urged OPEC to reduce supply at its emergency meeting this week [Nov. 29]. On top of the Citigroup bailout news, President-elect Barack Obama is expected to unveil his economic team today, which could work to further boost confidence in the markets," Raymond James analysts said.

Possible 'turning point'
Still, Horsnell said, "Up to this point, the external market context, demand-focused sentiment, data flow, and pure momentum have all meant that the direction of prompt oil prices has been by and large a one-way street heading downwards. Anything that might have looked like a fragile green shoot of potential price recovery has immediately been steamrollered and covered by a thick layer of smoking asphalt by the road gang of negative sentiment."

However, he claims to see "the first signs of a turning point" in market dynamics and in both supply and demand-side indicators. Despite frequent headlines about investors dumping commodities, "fresh short-term unhedged money is pouring into the oil market at a substantial rate, with a very strong bias towards the short side," he said. "In absolute terms, the speculative short on oil is the largest it has ever been, and, in our view, some 40% of that absolute short has been initiated over the past month alone."

On the supply side, Horsnell said, "It is becoming increasingly clear that the oil industry has in effect gone on strike. Decisions have been postponed, projects cancelled or put into the deep freeze, and, as in many other sectors, the imperative to conserve cash has become dominant. In some areas of the world, cost structures and fiscal structures are such that operations have become cash negative. Discretionary maintenance has been delayed, and in some cases it appears that cuts are being made to what would be normally thought of as nondiscretionary maintenance. It is those areas in particular where we are becoming increasingly concerned about the weakness of supply, not only beyond 2010 but also in 2009."

Barclays Capital currently projects a 400,000 b/d decline in non-OPEC supplies in 2009—or lower if prices remain much longer at or below current levels. "Were conditions to reach the point where stripper wells came off stream, and where some natural gas liquids were being kept in the gas stream rather than being stripped out, then the non-OPEC decline could stretch beyond 1 million b/d," Horsnell said.

As for demand, he said, "The provisional US and Japanese data…are of course both very weak, down by a combined 2 million b/d even before the imminent revision of the US number. However, the rest of the Organization for Economic Cooperation and Development was better, recovering from a year-over-year fall of 600,000 b/d in August to a rise of 200,000 b/d in September, primarily due to a strong improvement in the figures for France, Germany, Canada, and Korea. Without that improvement, the OECD as a whole could have been as much as 3 million b/d down year-over-year, but with that improvement the decline is at least containable. OECD demand remains very weak, but at least it is not weakening further, and early signs seem to suggest that the coming months will see at least a relative improvement from the depths of OECD demand weakness seen in the third quarter."

Energy prices
The January contract for benchmark US light, sweet crudes climbed 51¢ to close at $49.93/bbl Nov. 21 on the New York Mercantile Exchange. The February contract gained 55¢ to $50.96/bbl. On the US spot market, WTI at Cushing, Okla., was down 49¢ to $49.13/bbl. Heating oil for December increased 2.37¢ to $1.70/gal on NYMEX. RBOB for the same month increased 5.73¢ to $1.06/gal.

The December natural gas contract escalated 16.4¢ to $6.48/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 15.5¢ to $6.61/MMbtu.

In London, the January IPE contract for North Sea Brent gained $1.11 to $49.19/bbl. The December contract for gas oil fell $9 to $520.75/tonne.

The average price for OPEC's basket of 13 benchmark crudes lost $1.50 to $42.56/bbl on Nov. 21. So far this year, OPEC's basket price has averaged $100.55/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

Statoil to delay development of Johan Castberg, Snorre 2040 projects

03/06/2015 Statoil ASA and its respective partners have reported the postponement of the development of both the Johan Castberg and Snorre 2040 field projects...

BP, partner complete $12-billion deal to develop Egypt gas

03/06/2015 BP PLC and a local partner have signed final agreements for the West Nile Delta (WND) natural gas project in Egypt, whereby $12 billion will be inv...

Tap Oil starts review of divestment options

03/06/2015 Tap Oil Ltd., Perth, has begun a strategic review of its divestment options, which is being held in the shadow of a boardroom leadership challenge ...

MARKET WATCH: NYMEX prices fall on strengthening dollar

03/06/2015 Oil prices fell modestly on the New York market Mar. 5, which analysts attributed to concerns about an unexpected increase in US gasoline supplies ...

Maritime transportation is moving toward LNG, Brookings speakers say

03/05/2015 Maritime industries’ use of LNG instead of diesel to fuel its vessels is changing from potential to reality, speakers agreed at a Mar. 3 discussion...

US Arctic priorities shortchange Alaskans’ needs, Senate panel told

03/05/2015 As the US prepares to chair the Arctic Council later this year, it recognizes that international decisions can directly affect Alaska and its resid...

USW, Shell to resume talks amid ongoing labor strike at US refineries

03/05/2015 The United Steelworkers union (USW) and Royal Dutch Shell PLC, which serves as lead company for National Oil Bargaining negotiations, have agreed t...

Venezuela, Trinidad and Tobago sign energy accord

03/05/2015 Venezuela and neighboring Trinidad and Tobago have signed an agreement that will enable both countries to develop the Manakin-Cocuina natural gas f...

EIA: US petroleum product exports rise for 13th consecutive year

03/05/2015 US exports of petroleum products averaged a record 3.8 million b/d) in 2014—an increase of 347,000 b/d from 2013—based on data from the US Energy I...
White Papers

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

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...
Available Webcasts


Cognitive Solutions for Upstream Oil and Gas

When Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

When Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST



On Demand

Prevention, Detection and Mitigation of pipeline leaks in the modern world

Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST


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


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