Futures price contango compresses

Sam Fletcher
OGJ Senior Writer

There has been a gradual compression this year of the futures price contango for key benchmark crudes, with the narrowing most evident at the front of the North Sea Brent curve.

As to when the market will tighten enough to remove the front-month contango completely, Paul Horsnell, managing director and head of commodities research at Barclays Capital in London, said Feb. 18, “An aggressive timing would be as early as next month, although that would require a run of particularly strong data. The slowest likely timing would be June, but we see the current dynamics as favoring a slight flirtation with backwardation by the end of April.”

He said, “The flattening of the very front of the curve seems to have some more urgent momentum.” The fall of commercial crude inventories at Cushing, Okla., in the week ended Feb. 12, “even as overall US crude inventories rose, is one source of support for that transition in West Texas Intermediate, but the process has some broader base beyond just the constructive pattern of Midwest dynamics,” Horsnell said.

The Energy Information Administration said US crude stocks jumped by 3.1 million bbl to 334.5 million bbl in that week, well above Wall Street’s consensus of a 1.7 million bbl gain. Gasoline stocks advanced 1.7 million bbl to 232.1 million bbl, also exceeding a consensus for a 1.5 million bbl increase. Distillate fuel inventories fell 2.9 million bbl to 153.3 million bbl, exceeding analysts’ expectations of a 1.5 million bbl decline but still above average for this time of year (OGJ Online, Feb. 18, 2010).

Crude prices climbed in eight out of nine sessions on the New York Mercantile Exchange Feb. 8-19, falling only in the Feb. 12 session. The front-month crude contract closed at $79.81/bbl Feb. 19, after climbing a total 8% through that shortened week with the New York market closed for the Presidents Day holiday on Feb. 15. Horsnell said, “We expect to see the low point of the range shift upwards in the transition towards a dominant $80-90/bbl range.

Crude prices were relatively flat in early trading Feb. 22. However, natural gas was down more than 2% despite the National Weather Service’s 8-14-day prediction of a “high probability” of unseasonably cold temperatures in the Southeast and Southern Plains in March.

Air, truck freight increases
Horsnell cited a recent Barclays Capital report of a steady rise in the absolute level and year-over-year profile in air freight traffic volumes “that has recovered sharply from a 1% fall in October to a 10% increase in November and a 24% increase in December.”

He said, “With the overall recovery in global distillate demand waiting on a sustained increase in freight volumes and a normalization in final goods inventory to goods sales ratios, the air freight recovery seems to augur well for the path of overall freight volumes.”

He said, “What has been lacking to date is evidence of a sustained uptick in road (and rail) freight. The latest trucking data do, however, seem to suggest that there has been something of a turning point, or to be more precise that the low point for US truck movements is more clearly in the rear-view mirror. The latest American Trucking Association data show a slight month-over-month uptick in trucking mileages for December in the raw data, and a slight month-over-month fall in the seasonally adjusted data. However, it also shows the first year-over-year increase in trucking mileage since June 2008. Using the seasonally adjusted data, the year-over-year increase of 5.9% contrasts with the decline of 16.9% for 2009 as a whole.”

Overall, trucking dynamics “appear to be continuing their gradual improvement, and we are confident enough in that data flow to declare that the low point for US truck freight was indeed reached and passed as long ago as April 2009,” Horsnell said. “It may be apparent in the trucking data, but the evidence of the watershed having been reached has been slower in the weekly oil data. Diesel inventories are at least moving closer to their 5-year average in a constructive manner.”

He added, “The latest weekly reading on distillate demand is, at 3.787 million b/d, the highest of the year so far, but as a herald of better things to come it seems rather muted. The overall overhang of inventories above the 5-year average ticked up by a mild 1.4 million bbl in the latest data, made up of 900,000 bbl of crude and 500,000 bbl of products.

(Online Feb. 22, 2010; author’s e-mail: samf@ogjonline.com)

Related Articles

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.

Anadarko reports 2014 loss, remains upbeat about Wattenberg

02/03/2015 Anadarko Petroleum Corp. announced a 2014 net loss of $1.75 billion, or $3.47/share diluted, including a net loss of $4.05 billion associated with ...

CNOOC cuts capital budget, starts production from Jinzhou 9-3

02/03/2015 CNOOC Ltd. is slashing its capital budget for 2015 by 26-35% to $11.25-12.86 billion compared with last year’s budget. Capital expenditures for exp...

Seven Group buys into Beach Energy

02/03/2015 Media group Seven Group Holdings, Perth, has bought 13.8% of Adelaide-based Beach Energy Ltd. through share purchases fuelling speculation of a pos...
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