MARKET WATCH: Gas falls, crude climbs in New York market

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 19 -- Despite a bearish inventory report, declining natural gas managed to hold above $4/MMbtu June 18 on the New York market while crude continued to climb despite a strengthening dollar, helped along by more indications of a recovering economy, a continued bloody dispute over the Iranian election, and reports of another pipeline attack in Nigeria.

“Despite US dollar strength, crude oil rose on better than expected economic data,” said analysts at Pritchard Capital Partners LLC, New Orleans. US leading indicators posted a reading of 1.2% in May vs. a forecast of 1%, on top of a 1.1% increase in April, the New York-based Conference Board reported. In other news, the Philadelphia Fed Index showed manufacturing in the region contracted at the slowest pace in 9 months, a –2.2 vs. a forecast of –17. The US Department of Labor also said the number of US residents receiving jobless benefits fell for the first time since January. US stocks snapped a 3-day losing streak with the Standard & Poor’s 500 Index up 1% to 919.93 and the Dow Jones Industrial Average increased 0.8% to 8,568.75.

Energy stocks continued to underperform despite a rebound in the broader stock market. But even the strengthening dollar couldn't pull down oil prices in the face of “worsening turmoil” in Nigeria, said analysts in the Houston office of Raymond James & Associates Inc. Eni SPA closed a 33,000 b/d oil pipeline supplying the Brass export terminal in Nigeria following an overnight attack on the pipeline. The Movement for the Emancipation of the Niger Delta (MEND) claimed credit for that attack. The militant group earlier attacked a Royal Dutch Shell PLC pipeline cutting supplies to the Forcados oil terminal. Attacks have reduced Nigeria’s exports more than 20% since 2006.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “There are further mentions in the local press of evacuation of workers from the Delta (up to 700, of which about 350 from Chevron). Oil majors are apparently evacuating personnel in fear of other attacks, and if they have such fears than we need to price-in a risk premium.” The June 17 attack on Shell’s Trans Ramos pipeline “should have an impact on at least 100,000 b/d of crude flows.” Jakob noted, “Missing flows from Nigeria are starting to add.”

In Iran, at least 15 people have died in protests since the June 12 reelection of President Mahmoud Ahmadinejad that prompted the largest antigovernment demonstrations since the 1979 revolution. “The continuation of the protests in Teheran are a mounting embarrassment for the governing powers and increases the chance either a violent repression or the creation of a diversion by opening another front,” Jakob said. “We will need to keep an Iranian risk premium for the weekend, and to it we will add a Nigerian risk premium.”

Natural gas outlook
The US Energy Information Administration reported the injection of 114 bcf of natural gas into US underground storage in the week ended June 12. That boosted working gas in storage to 2.56 tcf, up 622 bcf from year-ago levels and 472 bcf above the 5-year average.

Raymond James analysts said, “While gas prices have remained surprisingly resilient during the past month, hovering around $4/Mcf, inventories continue to grow at alarming rates. The longer US gas prices stay above the cash break-even price for E&P companies and remain high enough to incentivize LNG imports, the bigger the train wreck for gas prices when storage fills this fall.”

Pitchard Capital Partners said, “The question remains will the production declines due to the reduced drilling activity and shut-ins be sufficient to draw down the record levels of storage?” In a recent conference call cohosted by the investment banking concern, officials with XTO Energy Inc. said they expect a 10% (4-6 bcfd of gas equivalent) decline in US gas production by yearend. XTO has hedged 80% of its 2009 gas production at $10.69/Mcf of gas equivalent and 33% of its 2010 production at $10.96/Mcf of gas equivalent.

“XTO could elect to hedge more of their 2010 natural gas production at current levels (June 2010 NYMEX natural gas future trading at $6.20/MMbtu), and if they were to do that, their 2010 production would probably still be hedged at above $8. The US natural gas market is currently oversupplied at 1-2 bcfed, and if the XTO forecast is correct, a 10% production decline would eliminate the excess natural gas in storage and balance the natural gas market,” said Pritchard Capital analysts.

XTO officials see the US natural gas rig count bottoming at 650 rigs, down from 685 as of June 12. Evidence of gas production declines likely will show up in May and June data, they said.

“XTO said on the call that it would, potentially, be adding rigs at Elm Coulee given the rise in oil prices. We believe there will be news on as many as three new Three Forks and Sanish wells on the next quarterly call,” said Pitchard Capital Partners. “Results to show improvement in Fayetteville based on new midstream infrastructure and look forward to early Marcellus and Haynesville results over the next two quarters. XTO seems to have the best Texas Haynesville well to date based on several months of production from its Panola County well,” they said.

Analysts at Friedman, Billings, Ramsey & Co. Inc. (FBR) in Arlington, Va., said, “With weak industrial and gas-fired power demand, as well as improved nuclear utilization rates, we expect [gas] storage to continue to build above 2008 and historical 5-year average levels.”

They said, “Natural gas remains the least expensive btu source, but we believe this is for a reason. An abundant, new source of low risk supply coupled with a cyclical downdraft in industrial production and power generation has created a potential imbalance. While we remain overweight in the US E&P space, given material shale-reserve driven growth potential, lower service costs, and eventual supply flattening, we are cautious near term as the E&P equities are currently pricing in $70/bbl crude oil and $6/Mcf natural gas on a proved basis. As such, we would feel better about initiating new positions in the space with another 10% correction in equity values and remain defensive in large caps, Appalachia, and midstream leveraged names.”

During the first quarter of this year, they said, “The US imported 1.6 bcfd less natural gas from Canada (down 17%) and imported 120 MMcfd more LNG compared to last year (up 13%), for a net decline of 1.5 bcfd. In addition, lower 48 natural gas production, according to EIA 941 data, is up 1.3 bcfd (2%) year over year. All else being equal, this would suggest that storage builds year to date should have been lower than where they are currently. To us, this implies that demand is much weaker than is being reflected by storage build numbers.”

FBR analysts said, “Recent outperformance of natural gas has a range of reasons. From the beginning of the year and until about June 2, crude oil and E&P energy equities had outperformed natural gas by 46% and 53%. Since then, natural gas has outperformed crude oil by 1% and E&P equities by 11%. In our opinion, the reasons for this outperformance ranges from hope that the continued declines in land rig count will ultimately result in reduced supply availability, which will demand a rebound later this year and next year, as well as a simple concept of an oil-gas ratio of 19 times that is too high compared to the historic ratio of 9 times, and natural gas prices have to come up to lower the ratio. Also, our conversations with investors suggested that natural gas is being viewed as a cheaper way to buy insurance against inflation as opposed to chasing the massive oil rally.”

They said, “We view the natural gas market to be structurally oversupplied due to the ever improving deliverability and producability from the shale plays. We are also of the opinion that demand recovery will be much more muted compared to gross domestic product growth.”

Energy prices
The July contract for benchmark US light, sweet crudes gained 34¢ to $71.37/bbl June 18 on the New York Mercantile Exchange. The August contract advanced 21¢ to $71.91/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 34¢ to $71.37/bbl. Heating oil for July declined 2.6¢ to $1.84/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month dipped 0.31¢ but remained virtually unchanged at an average $2.02/gal.

The July natural gas contract fell 16¢ to $4.09/MMbtu, wiping out gains from the previous session on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 15¢ to $4.14/MMbtu, regaining most of its previous loss.

In London, the August IPE contract for North Sea Brent crude increased 21¢ to $71.06/bbl. The July gas oil contract gained $6 to $585/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 91¢ to $70.28/bbl on June 18.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

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...

BP trims capital budget by $4-6 billion

02/03/2015 BP PLC plans an organic capital expenditure of $20 billion in 2015, down from the previous guidance $24-26 billion. Total organic capital expenditu...

IHS sees second-half end of US output surge

02/03/2015

Expectations are moderating about growth of oil production in the US this year.

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


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

When 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



On Demand

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

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


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


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