MARKET WATCH: Weak European economy, mild weather reduce energy prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 8 -- Front-month crude prices continued to fall Sept. 7 while natural gas gave up a large segment of its gain from the previous session in the New York market.

With no major new US economic data, the markets looked to Europe for indicators. “Unfortunately, the outlook there was less than rosy, and the Standard & Poor’s 500 fell 1.2% on concerns of the financial position of European banks,” said analysts in the Houston office of Raymond James & Associates Inc. “As the euro gave up ground against the dollar, crude prices followed the market down dropping 0.7%.”

Natural gas prices fell 2.2% “as worries about Tropical Storm Hermine subsided and weather reports predicted cooler temperatures for next week,” Raymond James analysts reported. Hermine had no major effect on offshore operations as it passed quickly through the western Gulf of Mexico and made landfall at near-hurricane strength in northern Mexico late on Sept. 6. The weakened storm has since moved into South Texas, again with no major effect on production or refining.

“The dollar gained 1.5% against the euro after concerns about Europe’s financial health resurfaced,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “German factory orders posted the biggest drop since February 2009 declining 2.2% in July after surging 3.6% in June. Weaker than expected factory orders in Europe’s economic powerhouse took wind out of the euro’s sails as economists were expecting that the orders would gain 0.5%. The demand for the fuel is expected to drop anyway since the driving season is now over.”

At Standard New York Securities Inc., part of the Standard Bank Group, analyst Walter de Wet said crude prices remain range-bound ahead of this week’s inventory data from the American Petroleum Institute and the Department of Energy. Release of those reports is delayed this week because of the US Labor Day holiday.

“Largely consistent with seasonal patterns, US refinery utilization remains high, with utilization rates at 84.8% last week. We expect utilization rates to remain high throughout most of September,” said De Wet. “Gasoline inventory on a days-forward basis has risen from 23.4 days at the end of June to 24.1 days last week. Distillate days forward cover stands at a high of 47.9 days. However, despite the high refinery utilization rates, crude oil inventory is not declining. Crude oil coverage has steadily risen from 23 days at the start of August, to 24.1 days last week.”

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The current market dynamics continue to be driven by the wide movements in the West Texas Intermediate contango and the arbitrage between [North Sea] Brent [crude] and WTI.

He reported, “The contango plunge on WTI continues to move WTI to a very strong discount to Brent. The last time we had WTI moving at such a discount to Brent was in the last half of April. That was followed by a $22/bbl flat price drop in WTI in the first half of May. History does not necessarily repeat itself and the May sell-off in crude oil was coming from a higher flat price level, was helped by a sell-off in equities and the crude oil physical differentials in the North Sea were not as strong as today. However, in our opinion the equity rally of last week is still at risk given that there have been continuous outflows from equity mutual funds since early May (a record 17 consecutive weeks of outflows).”

Jakob said, “The widening of the contango on WTI is forcing better refinery margins in the US, and as crude is pricing itself to go into the processing units as well as into the storage tanks, we should expect to see a continued burdensome picture in US product stocks. We would expect the current WTI contango to spill negatively into the product time spreads over the next trading months.”

In other news, Pritchard Capital Partners said Henry Hub benchmark gas averaged $4.33/Mcf for the third quarter during bid week. That was up from averages of $4.09 in the second quarter of this year and $3.39 for the third of 2009. “Roughly two thirds of US gas supplies are sold under bid week,” the analysts said. “Currently, the 3-month forward curve is $4.08/Mcf, implying a negative year-over-year.” With an annual production increase of 3 bcfd, the analysts said, “We expect gas will likely to test low $3[/Mcf level] in the near-term,” they said.

Energy prices
The October contract for benchmark US light, sweet crudes dropped 51¢ to $74.09/bbl Sept. 7 on the New York Mercantile Exchange. The November contract lost 12¢ to $75.85/bbl. Subsequent monthly contract prices increased but remained in contango. On the US spot market, WTI at Cushing, Okla., was down 51¢ to $74.09/bbl. Heating oil for October] delivery gained 1.7¢ to $2.07/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 1.34¢ to $1.93/gal.

The October natural gas contract fell 8.7¢ to $3.85/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rose 7¢ to $3.82/MMbtu.

In London, the October IPE contract for North Sea Brent gained 87¢ to $77.74/bbl. Gas oil for September dropped $1.75 to $646.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes fell 44¢ to $73.02/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

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


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

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