Crude tops $62/bbl

Sam Fletcher
OGJ Senior Writer

On May 20, its first day in the front month position, the July contract for benchmark US sweet, light crudes escalated $1.94 to $62.04/bbl on the New York Mercantile Exchange, marking the first closing above $60/bbl since early November.

Crude futures were spurred past $60/bbl resistance by gains in the equity market, a weak US dollar, and the latest wave of unrest in the Niger Delta, with raids on both oil facilities and militants' camps reported. However, July crude retreated to $61.05/bbl in the next session as major US equity stock indexes were hammered and the dollar gained in value.

Nevertheless, with the Dow Jones Industrial Average down more than 2% and a sharp drop in the price of natural gas, the fact that crude was able to sustain above $60/bbl was "further confirmation that crude oil is starting to have a trading life of its own rather than being a pure correlation to equities that even a 5-year-old could trade," said Olivier Jakob at Petromatrix, Zug, Switzerland.

In New Orleans, analysts at Pritchard Capital Partners LLC said, "On a historic basis at 17 times the price of natural gas, oil is trading way above the historical 7:10 ratio. However, concerns over the dollar and its sovereign credit rating may help crude hold the $60 level provided investors see crude as an alternative to the dollar."

At the Centre for Global Energy Studies (CGES), London, analysts said, "The oil futures market remains buoyant, despite ample oil inventories in the US and Europe and over 130 million bbl of oil stored at sea, while US refinery utilization remains low."

They said, "The current economic situation remains unremittingly bleak—US housing starts in April were at their lowest level since records began, and Japan has posted ghastly first quarter gross domestic product figures." Nonetheless, CGES analysts said, "Global oil demand could be at a turning point, and oil prices will find more support from the fundamentals if there is a stock draw during this quarter, as the Centre expects."

Demand is not nearly as feeble as it was in the first quarter, said CGES analysts. "During this quarter consumer inventories were run down in most industries, causing stocks to rise at the manufacturing or extraction stage, but such a process cannot carry on indefinitely. In the oil market, the secondary and tertiary stocks have been run down so far, and when these come close to tank bottoms a draw down of primary stocks should begin. Indeed, this looks to have already begun in the US," they said.

Meanwhile, the main challenge for the Organization of Petroleum Exporting countries is to maintain a high level of compliance with the group's official target. "With Nigeria in disarray, other members might well be tempted to make up this 'shortfall,'" warned CGES analysts.

Natural gas
During May 21 trading, analysts in the Houston office of Raymond James & Associates Inc. said, "The real fireworks were in the gas market where prices plummeted 9%"—the biggest one-day drop in natural gas futures prices since August 2007. That came after the Energy Information Administration reported the injection of 103 bcf of natural gas into US underground storage in the week ended May 15. It put working gas in storage at 2.1 tcf, up 514 bcf from year-ago levels and 387 bcf above the 5-year average (OGJ Online, May 21, 2009).

Raymond James analysts said, "The market is still over-supplied, and the drastic fall in the rig count was most likely too late to save the market from dismal summer gas prices. Be it delayed completions, choking back wells, or completely unplugging the Christmas tree, we still believe there will have to be substantial shut-ins this summer."

The drop in gas price appeared "completely trading driven as the price action on the physical hubs was fairly subdued, and approximately half of the hubs we monitor traded up on [May 21] despite the pounding NYMEX natural gas took. The physical markets are not moving in lock step with the NYMEX 'trading' market," said Pritchard Capital Partners. "If the physical markets do not follow the NYMEX market in next few days, the sell-off may just have been a trading event."

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, "At prices near $4/MMbtu, the EIA calculates a 2 bcfd gain in gas use in the southeast US. In our view, a gain of this amount is required over the rest of the storage build season in order to prevent a storage peak rising from 3.7 tcf to 4.1 tcf."

(Online May 25, 2009; author's e-mail: samf@ogjonline.com)

Related Articles

Statoil reduces capital budget by $2 billion following 4Q losses

02/06/2015 Statoil ASA has reduced its organic capital expenditure to $18 billion in 2015 from $20 billion in 2014. The move comes on the heels of a fourth qu...

MARKET WATCH: NYMEX oil price bounces back up somewhat

02/06/2015 Crude oil prices on the New York market bounced up $2/bbl to settle slightly above $50/bbl Feb. 5. The positive momentum continued during early Jan...

Oil-price collapse may aggravate producing nations’ other problems

02/05/2015 The recent global crude-oil price plunge could be aggravating underlying problems in Mexico, Colombia, and other Western Hemisphere producing natio...

MARKET WATCH: NYMEX oil drops, ending 4-day rally

02/05/2015 Crude oil prices dropped on the New York market Feb. 4 to settle below $50/bbl and to end a 4-day rally after a weekly government report showed oil...

Alberta’s premier seeks more North American energy integration

02/05/2015 Better policy integration and cooperation will be needed for Canada, Mexico, and the US to fully realize the North American energy renaissance’s po...

Deloitte studies oil supply growth for 2015-16

02/04/2015 A Deloitte MarketPoint analysis suggested large-field projects, each producing more than 25,000 b/d, could bring on 1.835 million b/d in oil supply...

Oil, gas infrastructure investments essential, House panel told

02/04/2015 Investments in oil and gas transportation and storage should move ahead because they are essential in continuing the US economic recovery and North...

MARKET WATCH: NYMEX crude oil prices reach 2015 high

02/04/2015 Crude oil prices surged more than $3/bbl on the New York market Feb. 3, closing at the highest level so far this year, but some analysts believe th...

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...

White Papers

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...

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

Available Webcasts



Global LNG: Adjusting to New Realties

When 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


US Midstream at a Crossroads

When Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST



On Demand

The Future of US Refining

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


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


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