MARKET WATCH: Corporate earnings, Bonnie push up prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 23 -- Optimism over recent corporate earnings and concerns about approaching Tropical Storm Bonnie pushed up energy prices July 22 in the New York market, wiping out by large margins all losses from the previous session.

Natural gas prices closed 2% higher after the Energy Information Administration issued a neutral report of injection of 51 bcf of gas into US underground storage in the week ended July 16, compared with Wall Street’s consensus for a 52 bcf input, said analysts in the Houston office of Raymond James & Associates Inc. That raised working gas in storage above 2.89 tcf, down 52 bcf from a year ago but 261 bcf above the 5-year average (OGJ Online, July 22, 2010).

However, Raymond James analysts reported both gas and oil down slightly in early trading July 23.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Global markets had a strong reversal, with the Standard & Poor’s [index] making a sharp rebound, the dollar index making a sharp fall, and the volatility index plunging again below 25%. The correlations then supported crude oil, but the rally of yesterday was not just about the exogenous correlations as a weather premium was added” because of Tropical Storm Bonnie.

Jakob said, “In our correlation model we value West Texas Intermediate at $77.35/bbl, hence $2/bbl lower than the closing value of WTI [in the New York market] and we will therefore value the weather premium priced-in for Tropical Storm Bonnie at $2/bbl. It is impossible to be 100% certain of the potential of a tropical storm, and Bonnie is heading straight into the main area of crude oil production in the US Gulf of Mexico.”

Offshore operators on July 23 began bringing nonessential personnel ashore, “and given that the production companies will be more cautious than usual this year in the approach of any cloud, we have to assume that some crude production will be shut-in,” Jakob said. “However, the models are not calculating this storm to be a major one (the probabilities that it reaches Hurricane 1 status are only 12%). Therefore, if the intensity forecast is not increased during the day and if WTI continues to hold a premium for Bonnie, we will rather sell any rally on the close than stay long over the weekend.”

Earlier this year, Jakob noted, “Hurricane Alex brought a $2.35/bbl premium” in the last session of the week ahead of “weekend uncertainty.” But after that weekend, the price declined $6.80/bbl as Alex hit the Mexican east coast rather than Texas. “A total of 1.3 million bbl of crude production was lost on the shutdowns for Alex, and if we need to expect some shutdowns for Bonnie, it will take more than a tropical storm to cause structural damage to the oil assets in Louisiana,” he said. He sees “a risk of [price] correction at the start of next week if Bonnie does not evolve over the weekend in something bigger than a tropical storm.”

June market performance
“June was an up-and-down month for both the energy sector and the broader market,” said Raymond James analysts. “While oil prices found solid support at $70/bbl and trade range bound between $70/bbl and $80/bbl, the broader market yo-yoed up and then even further down as the Standard & Poor’s 500 [index] hit 6-month lows at the end of the month. Crude, nevertheless, outperformed the broader market and ended the month up 2.2%, while natural gas continued its rally to as high as $5.20[/MMbtu] before pulling back and ending the month up 6.3%.”

They said, “Gas was buoyed by the hottest June ever recorded and the latest EIA 914 data point, which showed stagnating production growth. Energy stocks were especially volatile and had healthy gains by midmonth before giving them back in the last 10 days of the month as the broader market tested new lows. The broader market ended June down 5.4% while exploration and production shares finished down 6.1% and the Oil Service Index (OSX) dropped 4.7%. This was after the OSX was pummeled for 19% the month before.”

Raymond James analysts observed, “Crude oil has recently rebound along with the broader markets. The September contract is now hovering in the mid-$70s after continuing to find support at $70/bbl. In the short-run, we remain cautious due to the bloated domestic inventory levels and the global economy. However, incremental supply projects continue to be delayed, which should constrict long-term supply (bullish long-term picture).”

As for natural gas, they said, “Weather has continued to be much warmer than usual, which is having a large impact on the week-to-week storage injections. The weather-intensity we have experienced since May has pushed storage into a year-over-year deficit.”

Aside from increased weather-related demand, Raymond James observed, “The market is beginning to trend looser when compared with last year, which has brought July prices back down to the $4.50/Mcf range. The market still appears to be looking ahead at an oversupplied summer, and we think the growing supply outweighs any recovering demand and will push prices lower.”

They added, “The broader [equity] market pulled back for the second consecutive month, falling over 5% during June. Energy stocks were down as well, although E&P and coal stocks were noticeably weaker. Energy stocks had fallen significantly since peaking in late April but have only recently started to retrace these losses. So far in July, the broader markets are up about 4%, E&P stocks are up 3%, and the OSX has rebounded a solid 7.5%.”

Energy prices
The September contract for benchmark US light, sweet crudes jumped by $2.74 to $79.30/bbl July 22 on the New York Mercantile Exchange. The October contract escalated $2.64 to $79.64/bbl. On the US spot market, WTI at Cushing, Okla., shot up $3.02 to $79.30/bbl as it realigned with the front-month futures contract. Heating oil for August delivery increased 7.32¢ to $2.06/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month rose 7.88¢ to $2.15/gal.

The August natural gas contract jumped 13¢ to $4.64/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., inched up 0.5¢ but the closing price was essentially unchanged at a rounded $4.69/MMbtu.

In London, the September IPE contract for North Sea Brent crude was up $2.45 to $77.82/bbl. Gas oil for August gained $16.25 to $653.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 31¢ to $73.47/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

Market watchers' adjustments offer hints of recovery

01/26/2015 Because markets look ahead, changes in standard forecasts offer potentially important signals during storms such as the one now pummeling the oil a...

A message from Oil & Gas Journal

12/15/2014

An important transition occurred during production of this issue of Unconventional Oil & Gas Report.

MARKET WATCH: Crude oil prices down as US government shutdown lingers

10/16/2013 The front month crude oil contract on the New York market dropped to the lowest level on Oct. 15 since it last settled below $100/bbl on July 2.

MARKET WATCH: Crude oil traded higher amid Washington budget talks

10/15/2013 Crude oil futures prices traded higher on the New York market Oct. 14 as US lawmakers reported progress in ongoing efforts toward reaching an agree...

MARKET WATCH: Oil prices close down at end of volatile week

10/14/2013 The NYMEX November crude contract lost 99¢ on Oct. 11, settling at $102.02/bbl ending a week of volatile trading. The December contract fell 83¢ to...

MARKET WATCH: Oil prices continue falling as Syria risk apparently lessens

09/17/2013 Oil futures prices reached their lowest level in 3 weeks with the Sept. 16 closing while the US and Russia agreed to terms under which Syria is exp...

MARKET WATCH: Oil prices rebound slightly awaiting US decision on Syria

09/04/2013 Oil prices climbed on New York and London markets Sept. 3 in response to comments indicating key US lawmakers will support US President Barack Obam...

MARKET WATCH: Syria crisis puts pressure on some oil markets

08/27/2013 Crude oil prices in world markets edged upwards Aug. 26 on reports that “tolerance of the West for what’s taking place in Syria appears to be comin...

MARKET WATCH: Oil futures rise Aug. 23 on Lebanon violence

08/26/2013 Oil futures prices rose on the New York market Aug. 23, and traders attributed the increase to escalating violence in the Middle East that added to...
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


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


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