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

Obama’s proposed fiscal 2016 budget recycles oil tax increases

02/02/2015 US President Barack Obama has proposed his federal budget for fiscal 2016 that he said was designed to help a beleaguered middle class take advanta...

Pessimism mounts over UK offshore industry

02/02/2015

Pessimism about the UK offshore oil and gas industry is gaining momentum.

Syncrude sees additional $260-400 million in possible budget cuts

02/02/2015 The estimate for capital expenditures has also been reduced to $451 million net to COS, which includes $104 million of remaining expenditures on ma...

Union strike under way at US refineries, petchem plants

02/02/2015 The United Steelworkers Union (USW) has instituted a strike at nine US refining and petrochemical production plants following a breakdown in negoti...

MARKET WATCH: NYMEX, Brent crude oil prices rebound

02/02/2015 Crude oil prices rallied on the New York and London markets on Jan. 30. Brent crude oil prices settled at just under $53/bbl, which was its highest...

Shell cuts $15 billion in spending for 2015-17

01/30/2015 Royal Dutch Shell PLC has curtailed more than $15 billion in potential spending over the next 3 years, but is not “not overreacting to current low ...

Chevron’s $35 billion capital budget down 13% from last year

01/30/2015 Chevron Corp. will allocate $35 billion in its capital and exploratory investment program for 2015, including $4 billion of planned expenditures by...

Oxy cuts capital budget by a third

01/30/2015 In the midst of falling oil prices, Occidental Petroleum Corp., Houston, expects to reduce its total capital spending for 2015 to $5.8 billion from...

MARKET WATCH: NYMEX natural gas prices drop after storage report

01/30/2015 US natural gas closed at its lowest price in more than 2 years on the New York market Jan. 29 following the government’s weekly gas storage report,...
White Papers

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

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

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

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


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


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