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

EOG Resources’ budget down 40% to $4.9-5.1 billion

02/20/2015 EOG Resources Inc., Houston, plans a capital budget of $4.9-5.1 billion in 2015 including production facilities and midstream expenditures, represe...

BHI’s rig count reaches 5-year low; forecast projects more losses

02/20/2015 The US drilling rig count fell 48 units—markedly fewer compared with declines in recent weeks—to settle at 1,310 rigs working during the week ended...

More pragmatism urged for developing Eastern Mediterranean gas

02/20/2015 Eastern Mediterranean nations should abandon inflated expectations and adopt more realistic approaches to developing their natural gas resources, s...

MARKET WATCH: NYMEX crude oil prices down on US supply build

02/20/2015 US light, sweet crude oil prices for March delivery settled at slightly above $51/bbl on the New York market Feb. 19 after a government weekly repo...

PwC: Chemicals industry M&A activity in 2014 reached 10-year high

02/19/2015 Mergers and acquisitions (M&A) activity in the US chemicals business ramped up substantially in 2014, recording the highest volume in a decade ...

Marathon revises down budget by 20%

02/19/2015

Marathon Oil Corp., Houston, has reduced its capital, investment, and exploration budget for 2015 by another 20% to $3.5 billion.

MARKET WATCH: NYMEX crude oil prices drop before weekly inventory report

02/19/2015 US light, sweet crude oil prices for March delivery settled down more than $1/bbl on the New York market Feb. 18 awaiting the government’s weekly r...

Murkowski, Heitkamp lead Senate call for crude exports to Mexico

02/18/2015 US Sens. Lisa Murkowski (R-Alas.) and Heidi Heitkamp (D-ND) led a coalition asking US Sec. of Commerce Penny Pritzker in a Feb. 18 letter to encour...

Pemex cuts budget by $4 billion

02/18/2015 The board of Petroleos Mexicanos (Pemex) has approved a $4-billion budget reduction for 2015, an 11.5% decrease compared with the previous expendit...
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

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


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