MARKET WATCH: Stock market drags crude below $50/bbl

Sam Fletcher
Senior Writer

HOUSTON, Nov. 21 -- Crude prices fell for the fifth consecutive session Nov. 20, pulled down by a tumbling stock market, with the expiring December contract dropping below $50/bbl to its lowest closing in 3 years on the New York market.

However, analysts in the Houston office of Raymond James & Associates Inc. said the new front-month January contract climbed above $50/bbl in early trading Nov. 21 on news that crude supplies from the Organization of Petroleum Exporting Countries will be down 3.8% in November as recent production cuts begin to show.

Olivier Jakob at Petromatrix, Zug, Switzerland, reported the Dow Jones Industrial Average took another nosedive Nov. 20 "and took most of the commodity complex (except gold) with it."

He said, "Technically, West Texas Intermediate remains more than anything else a derivative of the DJIA and is fully re-enforced in a negative momentum." With crude futures having broken the $49.90/bbl low of 2007, Jakob said, the next target will be $45/bbl "with a stronger floor at $40/bbl." With daily fluctuations of $5-10/bbl, he said, $40/bbl oil "is not to be excluded."

Of course, crude has traded below $50/bbl before, "but never with the current volatility," Jakob said. "As long as volatility stays as high as it is, the short sellers are facing a negative time value, as oil would fall too quickly under a value zone where the oil economics and risk vs. reward needs to be revalued. If crude oil is to sustain a price below $50/bbl, volatility needs to come off. For now volatility is increasing, not decreasing," he said.

Next week will be a brief trading week, with US markets closed Nov. 27 for the Thanksgiving holiday. "If equities are able to hold today to their overnight gains, we think it will be difficult for oil to make significant new lows on its own in front of a short trading week and a long OPEC weekend," Jakob said. OPEC ministers are scheduled to meet in Cairo Nov. 29.

Meanwhile, rebel attacks on international oil company operations in Nigeria have increased over the last 10 days. Revenues from the delta bunkering must also be taking a hit at $50/bbl," Jakob said.

In other news, Delek US Holdings Inc., a diversified energy company, said a Nov. 20 explosion and fire has temporarily halted production at its 60,000 b/d refinery in Tyler, Tex.

Jakob said, "There is currently enough of a supply overhang for the market to discount skirmishes in Nigeria or a small refinery shut by fire in the US, but we will need to cautiously monitor the aftermath of recent Somali shipjackings." Earlier this week Somalian pirates hijacked a supertanker, the 1,080-ft Sirius Star very large crude carrier, with a crew of 25 and a cargo of 2 million bbl of oil, 450 nautical miles off the coast of Kenya (OGJ Online, Nov. 17, 2008). An Indian warship subsequently attacked and sank a suspected pirate "mother ship" off the coast of Oman after it fired on the warship when Indian officers asked to search the vessel.

As a result, the AP Moller-Maersk Group, one of the biggest shipping companies with a fleet that includes tankers, has said it will route its vessels beyond the Gulf of Aden waterway that the pirates have been raiding. Frontline Ltd. is considering doing the same with its fleet of VLCC tankers. "If Frontline or other owners embark on the same deviation, it will not only increase voyage time and cost but will also result in a build up of stock at sea that will need to be added to the demand equation," Jakob said. "The longer supply line would also result in a lower stock security cover for Europe."

Waxman assessed
The 137-122 vote by the House Democratic Caucus on Nov. 20 that replaced Energy and Commerce Chairman John Dingell (D-Mich.) with Rep. Henry Waxman (D-Calif.) "brings a greater environmental focus to the post," said Raymond James analysts. "Waxman's election may herald a more proactive approach to climate change policy, though we continue to believe that the enactment of cap-and-trade legislation is not realistic until 2010 at the earliest (OGJ Online, Nov. 20, 2008)."

In Arlington, Va., analysts at Friedman, Billings, Ramsey & Co. Inc. (FBR) listed four major implications to this change:

-- Further increases in corporate average fuel economy standards are now possible, particularly as Congress continues to focus on energy efficiency, greenhouse gas controls, and economic recovery during 2009.

-- There will be one less voice defending existing infrastructure in the next zero-sum subsidy showdown between plug-in hybrid electric vehicles and ethanol.

-- A Waxman GHG bill is likely to be considerably stricter in its near-term obligations for coal-fired emitters than the Dingell-Boucher "discussion draft" released in October.

-- Waxman's leadership is likely to increase the tax burden for integrated oils and could renew calls for a "windfall" profits tax and reexamination of the market power exerted by US refiners as a result of industry consolidation.

FBR analysts said windfall taxation and an unraveling of oil industry mergers and acquisitions are unlikely, "but headline risks are certain to increase." Moreover, they said, "There is the question of how to gauge the temperament of an institution that has just cast off a tradition of rewarding seniority. The caucus decision to decapitate the dean of the House from its most powerful committee suggests to us that there will be few checks in the lower chamber on decisions taken by Speaker Nancy Pelosi (D-Calif.) and Majority Leader Steny H. Hoyer (D-Md.)." They added, "We expect that Dingell will continue to make his voice heard (and he may find himself more free to criticize ideas with which he disagrees than he might have as committee chairman)."

Energy prices
The expiring December contract for benchmark US light, sweet crudes fell $4 to $49.62/bbl Nov. 20 on the New York Mercantile Exchange. The new front-month January contract lost $4.68 to $49.42/bbl. On the US spot market, WTI at Cushing, Okla., was down $4 to $49.62/bbl. Heating oil for December declined 8.38¢ to $1.68/gal on NYMEX. The December contract for reformulated blend stock for oxygenate blending (RBOB) dropped 10¢ to $1.01/gal.

Despite forecasts for cold weather in the Eastern US, the December natural gas contract fell 42.7¢ to $6.31/MMbtu on NYMEX after the Energy Information Administration reported a bearish injection of 16 bcf of natural gas into US underground storage during the week ended Nov. 14 vs. Wall Street expectations of a 5 bcf draw (OGJ Online, Nov. 20, 2008). On the US spot market, gas at Henry Hub, La., dipped by 2.5¢ to $6.76/MMbtu.

In London, the January IPE contract for North Sea Brent crude was down $3.64 to $48.08/bbl. The December gas oil contract fell $17.50 to $529.75/bbl.

The average price for OPEC's basket of 13 reference crudes lost $1.83 to $44.06/bbl on Nov. 20.

Contact Sam Fletcher at samf@ogjonline.com

Related Articles

EPA approves Magellan’s Corpus Christi splitter project

12/12/2014 The US Environmental Protection Agency has issued a final greenhouse gas prevention of significant deterioration construction permit to Magellan Pr...

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...

BOEM raises offshore oil spill liability limit to $134 million

12/11/2014 The US Bureau of Ocean Energy Management increased the liability limit for oil-spill related damages from offshore operations to $134 million from ...

Small subset of wells accounts for most methane emissions, researchers say

12/09/2014 A small subset of natural gas wells are responsible for most methane emissions from US natural gas production, said a study from the University of ...

Methane controls just part of complete climate strategy, speakers say

12/08/2014 Reducing oil and gas operations’ methane emissions is an essential, but far from the only, part of a comprehensive climate strategy, speakers at a ...

Cost-benefit believability

12/08/2014 In anticipation of what might become the costliest federal regulation in US history, Congress should join the Supreme Court in reviewing the Enviro...

EPA air proposals should recognize progress, API official says

12/08/2014 The US Environmental Protection Agency should recognize progress that is continuing before it considers imposing costly new air quality requirement...

EPA poses tighter ground-level ozone pollution controls

12/08/2014 The US Environmental Protection Agency proposed reducing ground-level emissions limits to 65-70 ppb from its current level of 75 ppb. It also will ...

API: Producers reducing methane emissions already

12/05/2014 US oil and gas producers are reducing wellhead methane emissions already and don’t need ill-conceived, overly prescriptive federal regulations, Ame...

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