Demand and prices fall

Sam Fletcher
Senior Writer

Even as a winter storm dumped snow and ice on the US Midwest and East Coast during Christmas week, markets remained unconvinced the Organization of Petroleum Exporting Countries can cut production fast enough to offset plummeting demand for oil.

"The colder weather continues to take a backseat to economic concerns, which are now weighing heavily on industrial and power generation demand," said analysts in the Houston office of Raymond James & Associates Inc. "Two of the world's biggest oil importers reported significant year-over-year declines in oil demand. Japan, the world's third biggest oil importer, reported its November crude imports were down 17% from the previous year, and South Korea, the world's fifth biggest importer, reported that its oil consumption was down 12% in November."

In New Orleans, Pritchard Capital Partners LLC analysts reported Abu Dhabi verbally informed India's Bharat Petroleum Corp. Ltd. to expect a cut in oil supplies in January, while Saudi Arabia and Kuwait had not yet issued similar notices. Meanwhile, crude production by Petroleos Mexicanos fell 6.5% from year-ago levels in November. Pemex reduced its 2008 production outlook for the third time, down 3.6% due to disruptions by hurricanes and the faster-than-expected decline of Cantarell field.

Demand outlook
On the natural gas front, Pritchard Capital analysts said, "The gas market seems poised to reset itself," in a process that includes shutting in some production and a more than a 30% drop in the number of active land rigs in the US. They see "a 4-6 month lag time before recent well decline rates translate into production volume decreases. We may see gas prices around $5/Mcf before things get better."

Pritchard Capital also perceives a shift from a supply-constrained market to a demand-constrained market for LNG. "Global LNG prices on the spot market seem to be stabilizing [at] $8-9/MMbtu in the Atlantic Basin and in the $11-12 range in the Pacific Basin." With prices at the Henry Hub, La., spot market "well below the prices a year ago," LNG terminals at Lake Charles, La., and at Sabine Pass and Freeport in Texas remain inactive, analysts said.

Olivier Jakob at Petromatrix, Zug, Switzerland, observed, "With the low oil prices and the low refining margins, the process of supply destruction is already in the works, and this is further evidenced by the falling trend of rotary rig utilization. Most of Wall Street is now targeting $30/bbl for West Texas Intermediate, a level which will only accelerate the supply destruction process in North America, making the US more dependent on 'foreign oil.'" More important, low oil prices "will be destroying production capacity, which will then allow for a reversal trade," Jakob said.

He added, "The [futures market] price of corn or soybean is holding much better than gasoline or heating oil, the ethanol processing margins are in the red, and the current oil prices also question the sustainability of biofuels in the supply and demand equation. The retail price of gasoline in the US is at the lowest level since early 2004 and with the gasoline crack giving back some of its recent gains, there should be some more improvement in the pump price for the US customer."

Paul Horsnell, Barclays Capital Inc., London, said, "Although the pace of decline in commodity prices has slowed in December, we believe there is still downside risk to prices should financial markets remain unstable, the dollar continue to strengthen and global growth projections continue to suffer cuts. Significant portions of existing output are unable to cover cash costs at current prices and output cuts are being rapidly enacted alongside the deferral of large numbers of new projects that have become very difficult to finance in the current environment. The damage being done to the supply side suggests prices could recover rapidly once the mood of pessimism surrounding global growth prospects starts to clear. We expect price volatility to stay elevated by historical standards as liquidity is thin, short positions in a number of markets are large and the potential for both demand and supply shocks is high."

Horsnell said, "We are in the midst of the most severe global recession since at least the early 1980s, if not the Great Depression. It is difficult to find an economy anywhere in the world that is not being hit hard, and the downward momentum underway virtually ensures that activity will continue to fall significantly through first quarter. The baseline Barclays Capital forecast expects the economic contraction to find a bottom around mid-year, but the recovery to be well below par."

(Online Dec. 29, 2008; author's e-mail: samf@ogjonline.com)

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

BHI: US oil rig count rises for first time in 30 weeks

07/02/2015 A sudden 12-unit jump in oil-directed rigs during the abbreviated week ended July 2 represented their first rise since Dec. 5, 2014, and helped lif...

Quicksilver Canada gets LNG export approval

07/02/2015 Quicksilver Resources Canada Inc. has received approval from the National Energy Board of Canada to export 20 million tonnes/year of LNG from a pos...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Origin lets contract for Otway basin fields

07/02/2015 Origin Energy Ltd., Sydney, has let a $1.3 million (Aus.) contract to Wood Group Kenny for provision of a detailed engineering design for the onsho...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...
White Papers

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

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
Available Webcasts


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

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