MARKET WATCH: Natural gas prices fall; crude oil continues rally

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 30 -- Natural gas prices continued to deflate with the front-month contract falling more than 4% on Aug. 27 in the New York market, but crude continued to climb for a third consecutive session, closing above $75/bbl.

“Natural gas was particularly hit as the [front-month] September contract expired under the prospects of milder weather and slowing industrial demand,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. The gas price was down 11% for the week “to the lowest level since Sept. 9 of last year after a slew of economic data signaled that industrial demand is slowing down,” he said.

With the September gas contract expiring “considerably below the coal-to-gas switching floor,” Sharma said, “We also expect demand from the utilities and independent power plants should be stronger in September, which would lend support to prices.”

Oil prices rallied after Federal Reserve Chairman Ben Bernanke said the Fed “will do all it can” to ensure a continuation of the economic recovery. The broader equity markets received Bernanke’s message “as a breath of fresh air after getting dogged for a few weeks by a barrage of bad economic news,” Sharma said. “Additionally, the second quarter gross domestic product growth, although bad at 1.6%, wasn’t as ugly as the economists’ expectations of a 1.4% [increase]. Despite the impressive price recovery on Friday, we expect crude to remain under pressure as crude and products inventory currently stand at 1.14 billion bbl, the highest level in at least 20 years, and the economic recovery remains largely tepid at this point,” he said.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The West Texas Intermediate correlation to the volatility index (VIX) has been weakening but remains extremely high to the S&P [index]. This week will be particularly intense in terms of macroeconomic data, and that should make it hard to trade the flat price of crude oil according to oil fundamentals, especially in front of a long weekend that should see traders squaring some of the books and leaving…more room for the correlation machines to make the market.”

Jakob reported, “After being oversold to the correlations, WTI has now bounced back very close to the correlated value of the average of the S&P, VIX, and the euro.

The WTI 3-2-1 refinery margin for October gained $1/bbl during the week “and this for a second consecutive week,” he said. “The positive contribution to the 3-2-1 came both from the heating oil and the gasoline crack. The solver to the exceptional glut of petroleum product stocks in the US is refinery run cuts, and this is a scenario that is being priced-in through the intra-values with a strong widening of the contango on WTI and a narrowing of the contango in heating oil. These shifts in the time structure are then helping to support the prompt refinery margins and could therefore translate into some refineries still trying to push out a little more product for a little longer.”

Analysts in the Houston office of Raymond James & Associates Inc. noted, “Despite the Standard & Poor’s 500’s 1.7% rally on Friday, the index still posted its third straight weekly loss.” On a brighter note, they said energy stocks outperformed the broader market Aug. 27.

In other news, Tropical Storm Earl evolved into a major hurricane Aug. 29 and rapidly expanded to Category 3 strength Aug. 30 in the northeaster Caribbean. Earl’s apparent path is expected to take it up the East Coast, avoiding any contract with oil and gas production in the Gulf of Mexico.

Energy prices
The October contract for benchmark US light, sweet crudes climbed $1.81 to $75.17/bbl Aug. 27 on the New York Mercantile Exchange. The November contract escalated $1.99 to $76.21/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.81 to $75.17/bbl. Heating oil for September delivery increased 3.51¢ to $2.04/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month gained 3.94¢ to $1.95/gal.

The September natural gas contract fell 16.6¢ to $3.65/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was down 11¢ to $3.70/MMbtu.

In London, the October IPE contract for North Sea Brent crude rose $1.63 to $76.65/bbl. Gas oil for September gained $4 to $643.50/tonne.

“WTI remains at a very steep discount to Brent and if the contango on Brent is much shallower than on WTI, in our opinion the fact that the US has to price to limit imports and maximize exports will start to weigh on the Brent spread as well,” Jakob reported. “The Middle East has exported some of its contango to the US, and we think that the US will now in turn export the contango to Europe. Freight rates remain very weak with an oversupply of [very large crude carriers (VLCCs)] looking for employment.”

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 96¢ to $72.36/bbl. So far this year, OPEC’s basket price has averaged $75.35/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...
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