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

BIS lists six considerations for condensate as a potential export

01/02/2015 The US Bureau of Industry and Security listed six considerations it will use to help determine whether US-produced crude oil condensate is a petrol...

MARKET WATCH: NYMEX crude oil futures end 2014 below $54/bbl

01/02/2015 The slump in oil prices worldwide continued on the last trading day of 2014 with US light, sweet crude closing at less than $54/bbl on the New York...

MARKET WATCH: NYMEX crude oil futures move up slightly awaiting inventory

12/31/2014 Crude oil prices on the New York market rose modestly on Dec. 30 awaiting the weekly US government report on crude oil and product supplies. Prices...

MARKET WATCH: NYMEX crude oil futures fall again, down 50% since June

12/30/2014 Crude oil prices on the New York market settled down by more than a $1/bbl on Dec. 29, reaching the lowest value since May 1, 2009, and analysts ex...

MARKET WATCH: NYMEX crude oil futures rally in early Dec. 29 trading

12/29/2014 Crude oil prices ended Christmas week by dropping more than $1/bbl for the Dec. 26 settlement on the New York futures market, but oil prices rallie...

MARKET WATCH: NYMEX’s January contract expires with a daily gain

12/22/2014 Light, sweet crude oil prices gained more than $2/bbl on the New York market Dec. 19 as the January contract expired and upon a wire service report...

IEA finds US energy policy improved in latest in-depth review

12/19/2014 US energy policies have come into sharper focus in the last six years, the International Energy Agency said in its latest periodic review. It speci...

Comstock to suspend 2015 oil drilling in Eagle Ford, TMS

12/19/2014 Due to low crude oil prices, Comstock Resources Inc., Frisco, Tex., plans to suspend its 2015 oil-directed drilling activity on properties in the E...

AWE pulls out of Otway permit

12/19/2014 AWE Ltd., Sydbey, has decided to pull out of Perth-based junior WHL Energy Ltd.’s offshore Otway Basin permit Vic-P67 after a series of time extens...

White Papers

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

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

Available Webcasts



The Future of US Refining

When 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

When 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



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


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