MARKET WATCH: Strengthening yuan may lift energy prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 21 -- The front-month crude futures contract on June 18 regained some of its loss from the previous session in the New York market while the near-month natural gas contract gave back most of its earlier gain as it fell more than 3%.

Crude continued to climb above $78/bbl and natural gas also rose in early trading June 21 after China said over the weekend it plans to end the yuan’s 2-year peg to the US dollar and increase the flexibility of its exchange rate. China artificially depressed the value of its currency in that period to give its exporters a financial advantage over competing US companies. Now with an improved economy, the People’s Bank of China wants its currency to trade more freely. A stronger yuan would make dollar-based commodities cheaper, potentially increasing Chinese demand, said analysts in the Houston office of Raymond James & Associates Inc.

“Despite the largely political-based motives behind the decision, markets are interpreting the news as a sign that policymakers believe the economic recovery will prove sustainable,” Raymond James analysts said. “The Standard & Poor’s 500 index finished above its 200-day moving average for the third straight session [on June 18] despite the release of several bearish economic data points earlier in the week. The beaten-down energy sector outperformed [other equities] as the oil spill ‘fallout’ appears to have exhausted itself.”

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “At first read, anything with the name China on it is seen as bullish for oil, and the move is likely to bring some supportive buying from the global asset managers. However, China is already the main source of oil demand growth, and we are not sure that this will change anything. The growth of Chinese crude oil demand is due to the increased refining capacity and that growth of crude oil demand will occur with or without a greater fluctuation in the yuan.”

Jakob said, “China’s net imports of petroleum products has turned closed to flat in recent months, and as Chinese refineries are currently also dependent on exports of light petroleum products, we are not yet convinced that the greater yuan fluctuation will translate into a shift in the petroleum product trade. Hence, overall we are not yet convinced that the latest announcement on the yuan fluctuation will translate into a major change for the physical oil supply and demand, the impact potential being probably more other commodities than in oil.”

Crude prices held above $75/bbl last week, “but the rally still appears vulnerable to economic news,” said analysts at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK. “ICE Brent crude futures for August stood at around $78/bbl, while the same West Texas Intermediate contract month was at $77.50/bbl and the expiring July contract at $76.25/bbl. Although ministers of the Organization of Petroleum Exporting Countries appear to have relaxed considerably since the recovery in crude futures prices from below $70/bbl a fortnight ago, the latest economic data from the US surprised the market by their weakness, showing an unexpected rise in jobless claims and a slowdown in factory activity. There have also been lingering fears that the debt crisis in Greece would spread to other south European nations such as Spain, although these eased again towards the end of the week.”

They noted, “The latest data came hard on the heels of improving demand numbers from the Department of Energy, which reported that US distillate demand…was up by more than 12% on the year, while product demand as a whole was up around 6%, based on the 4-week averages. We reiterate our standing caution that these improving year-on-year comparisons will be accentuated by the severe and sustained downturns we saw in the US last year, just as the sharp year-on-year gains in China’s oil demand earlier this year will start to slow as the comparisons are made against an ever-improving base figure.”

Meanwhile, continued softness in the job market has limited crude’s price rise despite prevailing optimism the economic rebound will continue in the second half of this year. However, Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “Persisting concerns about political activism in the energy sector has increased uncertainties in the market and is likely to propel prices higher; regulatory changes would not only defer some production into next year but would also increase the cost of future production.”

Nobuo Tanaka, executive director of the International Energy Agency in Paris, said global oil production may fall by 800,000-900,000 b/d by 2015 if other new projects in areas besides the US are delayed by 1-2 years.

In other news, Sharma said, “While prevailing higher-than-normal temperatures have been providing support to natural gas, we believe that the recent run-up in prices has had a lot to do with the short-covering [that] saw Sandridge Capital LP, a $1 billion energy hedge fund, lose almost 19% according to Reuters [news service]. We believe that Sandridge was not the only fund that found itself on the wrong side of the trade, as many other funds and banks’ prop desks got squeezed. We also believe that it will require persistently hotter-than-normal weather to support current price levels, because at $5/MMbtu, natural gas currently remains well above coal-to-gas switching parity price of $4.50.”

Energy prices
The July contract for benchmark US light, sweet crudes gained 39¢ to $77.18/bbl June 18 on the New York Mercantile Exchange after falling 88¢/bbl in the previous session. The August contract advanced 22¢ to $78.26/bbl. On the US spot market, WTI at Cushing, Okla., was up 39¢ to $77.18/bbl. Heating oil for July dropped 1.85¢ to $2.13/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 1.64¢ to $2.15/gal.

The July natural gas contract fell 16.5¢ to $5/MMbtu on NYMEX, giving up most of its gain from the prior session (OGJ Online, June 18, 2010). On the US spot market, gas at Henry Hub, La., continued to climb, up 1.5¢ to $5.15/MMbtu.

In London, the August IPE contract for North Sea Brent crude lost 46¢ to $78.22/bbl. Gas oil for July dropped $3.25 to $681/tonne.

The average price for OPEC’s basket of 12 reference crudes declined 11¢ to $75.13/bbl. So far this year, OPEC’s basket price has averaged $76.16/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

BLM approves ROW for Elko gas pipeline expansion project

07/07/2015 The US Bureau of Land Management’s Tuscarora, Nev., field office signed a decision record approving a right-of-way for Paiute Pipeline Co.’s (PPC) ...

Obama urged by IPAA president to lift ban on US crude exports

07/07/2015 Commending the administration for its actions allowing some condensate to be exported as a petroleum product, Independent Petroleum Association of ...

AER shuts in 16 Murphy Oil sites in Peace River region for noncompliance

07/07/2015 Alberta Energy Regulator said it has shut in or partially shut in 16 sites operated by Murphy Oil Co. Ltd. in the Peace River region. The sites wer...

MARKET WATCH: NYMEX, Brent oil prices take dive on world oil oversupply concerns

07/07/2015 US light, sweet crude oil prices plummeted more than $4/bbl on the New York market July 6, marking a 5-month low, while Brent crude oil prices on t...

WAFWA: Aerial survey finds lesser prairie chicken population grew

07/06/2015 A recent range-wide aerial survey found the lesser prairie chicken population rose 25% from 2014 to 2015, the Western Association of Fish & Wil...

Buru awarded onshore Canning licenses

07/06/2015 Buru Energy Ltd., Perth, and Mitsubish Corp. have been granted two production licenses for Ungani oil field in the onshore Canning basin of Western...

Cenovus sells royalty business for $3.3 billion

07/06/2015 Cenovus Energy Inc., Calgary, inked an agreement to sell its wholly owned subsidiary Heritage Royalty LP to Ontario Teachers’ Pension Plan for gros...

CERI: Energy, operational efficiencies possible in Canadian oil, gas

07/06/2015 Measures can be taken by operators in the expanding resource-intensive Canadian oil and gas sector to improve both energy efficiency and operationa...

AGL Energy to scale back upstream gas operations

07/06/2015

Gas retailer AGL Energy Ltd., Sydney, says it will exit the oil business and massively scaling back its upstream gas operations.

White Papers

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

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
Available Webcasts


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


OGJ's Midyear Forecast 2015

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


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