MARKET WATCH: Crude oil price rebounds above $76/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 13 -- The front-month crude contract shot above $76/bbl Sept. 10 in its biggest gain in more than 6 weeks in the New York market and challenged the $77/bbl mark in early trading Sept. 13.

“News out of China that the country's crude imports climbed by 10% since last month helped strengthen expectations for global demand growth for the remainder of the year,” explained analysts in the Houston office of Raymond James & Associates Inc. “An emergency oil pipeline shutdown in Illinois, which has interrupted crude flows to Midwestern refining markets, is also providing upward support on prices.” They advised, “For the week ahead, look for the markets to take their cues from key data points on retail sales, inflation, and consumer sentiment, while also keeping a watchful eye on weather developments in the tropics.”

At Standard New York Securities Inc., part of the Standard Bank Group, analyst Walter de Wet said, “Following the positive data out of the China over the weekend, West Texas Intermediate may push closer to $80/bbl. However, the $80/bbl level has proved a strong resistance level and rallies above this have been short-lived so far this year.” De Wet noted refinery utilization rates in the US remain high, especially distillates, “The high inventory level should continue to see selling into rallies above $80/bbl in WTI,” he predicted.

De Wet said, “We expect China’s manufacturing data to remain supportive in September (to be released in October). Since at least 2005, China’s [Purchasing Manager's Indices (PMI)] has never declined month-to-month in September. Even in 2008, when real economic activity slowed substantially, September’s PMI index reading was up. We expect the same in 2010.”

Enbridge Energy Partners LP shut in its 670,000 b/d 6A crude pipeline from Superior, Wis., to Griffith, Ind., Sept. 9 due to a leak in suburban Chicago. The leak has stopped and repairs are under way, officials reported, but there has been no indication when the pipeline will reopen. The pipeline connects Canadian production with Midwest refineries in the Midwest and the trading and storage center at Cushing, Okla. On July 26, Enbridge shut down its 190,000 b/d Line 6B, which runs from Griffiths, Indiana, to Sarnia, Ont., after the pipeline ruptured and spilt oil into a nearby river. The line has still not reopened despite now being repaired, said analysts at KBC Energy Economics, a division KBC Advanced Technologies PLC in Surrey, UK.

KBC analysts said, “Despite the renewed focus on less than rosy economic fundamentals, oil prices continue to hold in their familiar $70-80/bbl trading band, a range that has accounted for more than 70% of trading activity this year.”

They noted, “Fears of a double-dip recession in Europe were revived [last] week as debt-ridden countries in southern Europe looked to the market for funding, fanning fears that they may be shunned by lenders and slip into default. Meanwhile, in its latest monthly report, the Organization of Petroleum Exporting Countries predicted that global oil demand could weaken for the rest of this year as governments wind down stimulus packages, although it is still predicting growth of 1 million b/d in 2010 and 2011. OPEC said better-than-expected US growth would be more than offset by contraction in Europe, and it saw zero growth in Organization for Economic Cooperation and Development demand in 2010.”

A Pacific Gas & Electric Co. natural gas transmission line ruptured Sept. 9 in a San Francisco suburb, creating a massive fire. Four people died and several residential blocks were destroyed, but that mishap had no apparent connection to a 3.1% rise in gas futures prices on Sept. 10. The spot market gas price also increased.

Gas outlook
“Better-than-expected wholesale inventory data for July signaled that demand was still surprisingly strong, while forecasts of more storm developments in the Atlantic provided support to [gas] prices,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “Wholesalers, which constitute about 30% of all business stockpiles, increased their inventories by 1.3% in July, more than three times the consensus estimate of 0.4%. Earlier report of a measly 0.1% gain in June wholesale inventories had raised concerns about the manufacturing-driven recovery losing steam in the US, and the recent data eased some of those concerns. Given the cooling effect of the rains from storm Earl on the East Coast and lower demand due to the long Labor Day weekend, we expect to see a triple-digit injection [of gas into US underground storage] this week.”

Adam Sieminski, chief energy economist, Deutsche Bank, Washington, DC, said, “Until 2 years ago, natural gas was a rapidly globalizing industry, with pending supply shortages driving towards a price indexed to oil. With the emergence of nonconventional gas supplies in key regions and massive processing capability in the Middle East, the market is rapidly returning to regional battlegrounds, driven by a wide range of localized factors (technological, supply-demand, political, etc).”

Sieminski said, “Gas demand is not price elastic to low prices; with no CO2 legislative change at the margin, demand is dependent on weather and gross domestic product. Slow global growth and less extreme weather could present a demand issue in 2011.” He said, “Prices would be even lower if not for the actions of ‘gas OPEC’ members, the world’s biggest pipeline and LNG gas exporters, Russia and Qatar as they withhold production. We believe that Russia’s Gazprom is now the equivalent of Saudi Arabia for [controlling gas] prices. Current policy is to maintain oil-indexed prices of around $8/MMbtu for their gas and hold back excess supply. This policy has attracted LNG to Europe and left US LNG import capacity 85% empty, holding up US gas prices.”

He said, “We believe the market is underestimating the growth in incremental LNG supply that Qatar will supply over the coming year, doubling US LNG imports to 2.6 bcfd into a market we expect to remain oversupplied, as production holds up. We are cutting our US natural gas price forecast to a below-strip $4.50 for 2011 and $5.25 for 2012, and see little market tightness over the next two years. Given that CO2 legislation is already in place, Europe also looks fully supplied through 2015, and only in the post 2015 timeframe does the market look tight, basically because of declining supply rather than any great demand growth potential from these mature, high-tax, aging economies. The huge question here is for how long Gazprom is willing to hold back supply and maintain prices, losing market share to LNG. Gazprom is arguably now in the position that Saudi Arabia found itself in 1986—lose market share or allow lower prices. Asia is the bright spot, and we expect strong demand and monopoly buyers to pay around two times US and European gas prices. Key attractions [are] growth in Chinese demand and Australian supply.”

Energy prices
The October contract for benchmark US light, sweet crudes climbed $2.20 to $76.45/bbl Sept. 10 on the New York Mercantile Exchange. The November contract gained $1.58 to $77.37/bbl. On the US spot market, WTI at Cushing was up $2.20 to $76.45/bbl. Heating oil for October delivery increased 3.6¢ to $2.10/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month advanced 3.77¢ to $1.97/gal.

The October natural gas contract bumped up 11.5¢ to $3.88/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 6.5¢ to $3.85/MMbtu.

In London, the October IPE contract for North Sea Brent crude gained 69¢ to $78.16/bbl. KBC analysts said, “WTI crude remained discounted to its North Sea counterpart Brent despite a sharp contraction in the contango following another incident on one of the Enbridge pipelines. The contango between first and second month futures had widened to more than $3/bbl earlier in the week, as high stocks at the WTI delivery point of Cushing weighed on the US benchmark, despite drawdowns at the hub in recent weeks, creating the biggest “super-contango” since May. But the contango has narrowed sharply following the latest pipeline incident.”

Gas oil for September was unchanged at $662.75/tonne.

The average price for OPEC’s basket of 12 reference crudes increased 18¢ to $74.66/bbl. So far this year, OPEC’s basket price has averaged $75.24/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

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

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
Available Webcasts


OGJ's Midyear Forecast 2015

When 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


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


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

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


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