Crude tests $73/bbl

Sam Fletcher
OGJ Senior Writer

The July contract for benchmark US light sweet crude hit an intraday high of $73.23/bbl June 11 on the New York Mercantile Exchange before closing at $72.68/bbl, up $1.35 for the day after the International Energy Agency in Paris increased its prediction of global oil demand for the first time in 10 months.

However, oil closed at to $72.04/bbl June 12 after the Organization of Petroleum Exporting Countries reported its production increased for the second consecutive month, up 135,000 b/d to 28.27 million b/d in May. The 11 OPEC members, excluding Iraq, increased their production by 118,800 b/d to 25.9 million b/d in May.

IEA increased its oil demand forecast by 120,000 b/d to 83.3 million b/d. The latest total is down 2.9% from 2008 demand, compared with IEA’s previous prediction of a 3% decline (OGJ Online, June 11, 2009).

OPEC expects world oil demand growth to be down 1.6 million b/d in 2009, broadly unchanged from its previous report. It revised its 2009 projected growth for the world economy up by a mere 0.1%, still down 1.3% from 2008 levels. It expects non-OPEC production to increase by 200,000 b/d above 2008 production.

The 11 OPEC members excluding Iraq increased their production by 118,800 b/d to 25.903 million b/d in May. Analysts expect compliance with official production quotas will continue to erode as crude prices rise.

The average price for OPEC’s basket of 12 reference crudes surged almost 14% in May to $56.98/bbl, its highest monthly average in 7 months, driven by the widespread hope for a recovery in petroleum demand. OPEC’s basket price was up 68¢ to $70.87/bbl on June 11. Officials at OPEC reported the tanker market rebounded in May. “The [very large crude carrier] sector continued to suffer the most from the global economic crisis and OPEC output adjustments. Clean spot freight rates rose by 37% on average. After reaching a high level, storage at sea lost momentum towards the end of the month due to the narrowing of the contango structure in the crude futures market,” officials said.

May market increased
Analysts in the Houston office of Raymond James & Associates Inc. said, “Commodity prices rallied in May and the energy indices took note, outperforming the broader market by over 10%. While we believe both oil and natural gas may be in for short-term corrections in the coming weeks, the bifurcation between the two continues to grow. Oil is simply waiting for demand to recover before climbing even higher. Natural gas is headed towards full storage, and prices will plummet.”

They said, “Oil has ripped for 4 months in a row now, jumping 30% in May (and already up 6% in June). Oil has more than doubled off its bottom from back in February. While the global economy has started to show ‘green shoots’ of recovery, we still believe that a dramatic rebound in oil demand isn't in the cards for 2009, and a short-term pullback is likely given worldwide storage levels, which are still full.”

Raymond James observed, “The global economic crisis continues to obscure oil demand, with virtually no near-term visibility. Despite recent stimulus packages around the world, we assume depression-era year-over-year demand destruction of 3.5%. In spite of brimming worldwide inventories, oil has spiked to over $70/bbl over the last few months (over 100% above its February low). However, we believe global demand will need to stabilize (and possibly recover) before oil prices can be maintained at this level. We don't expect to see this until 2010, hence our $52.50/bbl second-half forecast. Even if oil prices saw a short-term pullback, we believe the long-term story is intact and accordingly model $65/bbl in 2010. Indeed, if anything, given the number of marginal supply projects that have been shelved, the long-term outlook for crude is actually stronger.”

As for natural gas, Raymond James analysts said, “While the fundamentals continue to deteriorate (year-over-year storage surplus quickly approaching 600 bcf), natural gas rode a technical rally higher in May, finishing the month up 14%. We believe this is solely the result of a lot of new money entering the market and still believe full storage will drive prices below $3/Mcf toward the end of summer.”

They said, “Despite our assumption of a 70% peak-to-trough decline in the gas rig count, we believe shut-ins may still total 500-750 bcf. To force such large shut-ins, natural gas prices would need to fall well below $3/Mcf. Moreover, LNG imports could be substantially above our estimates, causing an even higher amount of shut-ins. For 2010, the outlook is still uncertain.”

(Online June 15, 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

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

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
Available Webcasts


OGJ's Midyear Forecast 2015

When 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


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

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

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


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