MARKET WATCH: Crude nears 8-week high above $81/bbl

Sam Fletcher
OGJ Senior Writer

HOUSTON, Oct. 4 -- Front-month crude jumped above $81/bbl Oct. 1, trading near an 8-week high in the New York market as positive consumer spending data diminished fear of a double-dip recession.

Competition among central banks to devalue currencies also made oil more of a haven for investors. Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “Consumer spending in the US grew by 0.4% in August vs. consensus of a 0.3% increase, while personal income grew by 0.5% vs. consensus of a 0.3% growth. Now that the concerns about the double-dip recession and faltering economic recovery have eased, crude is again pushing towards $85[/bbl]. However, a sustained appreciation in prices would need a further trimming down of inventories.”

The broader equity markets “did not fully participate in the rally that drove oil futures up almost 2%,” said analysts in the Houston office of Raymond James & Associates Inc. The Standard & Poor’s 500 index was up a slight 0.2% and energy stocks followed suit with the oil service index and the SIG Oil Exploration & Production Index (EPX) up 0.1% and 1.1%, respectively.

At Standard New York Securities Inc., part of the Standard Bank Group, analyst Leon Westgate said, “Oil had a sizable gain last week helped by dollar weakness, bullish [government] inventory figures, strong economic news from the US and China, and political instability in Ecuador. Front-month West Texas Intermediate jumped by $5.09/bbl for the week. Front product cracks vs. WTI were also higher….”

Westgate noted “a little wobble” in oil prices in early trading Oct. 4 “on the back of a recovery in the dollar vs. the euro.”

Natural gas futures “ended on the opposite end of the spectrum, sliding to their lowest levels in 3 weeks,” Raymond James analysts reported. “Despite weak natural gas prices, the Baker Hughes domestic rig count is still up 62% year-over-year. Overall, high supplies and a moderate weather outlook sent prices down 1.9%, undercutting prospects for a seasonal rally,” they said.

Gas prices slipped 8.4¢ or 2.2% for the week “on dissipating weather support and larger than expected storage build,” Sharma said. “We expect prices to remain soft this week as temperatures are expected to be mostly normal across much of the country while the demand is expected to remain weak until the heating season kicks in. However, as growth in drilling activity has now largely stalled and the shift to the oily plays continues lowering the effective dry gas rigs, we expect supply to stabilize after likely having peaked in August,” he said.

Raymond James analysts expect natural gas to be range-bound at $3-6/Mcf over the next 5 years, but that doesn’t necessarily “put a lid” on future US coal prices. “A confluence of factors including declining production (due to increasingly challenging geology, regulations, permitting, and costs), incremental export opportunities, and additional demand from newly constructed power plants could drive near-term coal prices higher even in a depressed natural gas pricing environment,” they said. “Production challenges will likely be the most relevant issue in the near-term, but surging Asian coal demand should create meaningful export opportunities for US coal producers in the coming years.”

On the other hand, ICF International, a consultant service in Fairfax, Va., projects Henry Hub gas prices will average $5-7/MMbtu through 2030. “Prices will be high enough to support the robust supply development projected over time, but not so high as to adversely influence market growth,” said ICF analysts.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “In the main world stock markets, the global picture has not really changed. Asia (and especially China) is trailing and the best returns are obtained in the Atlantic Basin, a region that is dependent on all sorts of artificial government support.”

He said, “The problem is that all markets are now trading not on their core fundamentals but purely on liquidity expectations. If the economic numbers are worse than expected, then expectations of [US Federal Reserve Chairman Ben S.] Bernanke launching [a second round of ‘quantitative easing’ of the economy (QE2)] increase and assets get bid purely for the liquidity bubble ride. QE1 [the Fed's earlier purchase of debt to prop up the housing market and credit facilities for big banks] and the QE ‘Lite’ of September have done nothing for jobs and nothing for the economy, as evidenced by the amount of cash that is sitting in the vaults of the US banks and the continued decline of commercial loans.”

Before launching QE2, Jakob said, “The Fed will have to slash its gross domestic product forecast for next year (a cut of 1% is widely expected) and explain that it has to resort to QE2 because the economy is suffering from insufficient growth. Now, as a company, are you going to rush to get loans for massive investment projects and hire thousands of new employees when the Fed is revising its view on the economy lower? Probably not, and the amount of cash that is currently being un-used by banks is a testimony that the problem is more on the demand side than on the supply side.”

Analysts at KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, noted ICE Brent futures “broke decisively above $80/bbl,” testing the $83/bbl resistance level by the end of the week in a rally that reflected a renewed market focus on demand growth in China.”

KBC analysts said, “The rally, which marked the biggest monthly gain in crude futures in nearly 1½ years, came despite a fresh round of worries over European debt. Ireland moved into the spotlight this week as its government took drastic steps to prop up the country’s over-extended banking sector with a bail out of Allied Irish Bank, a measure that is virtually guaranteed to result in austerity measures for years ahead. Rescuing the banking sector could cost Ireland (or more likely its tax payers) €50 billion, representing more than a third of 2009 national income. Meanwhile, Spain saw its debt downgraded by Moody’s, the third ratings agency to take this step. Europe’s ongoing economic woes have depressed crude prices to around $70/bbl on a number of occasions earlier this year, and recently prices have struggled to make headway above $80/bbl because of fears that China’s economic growth was slowing. But the latest manufacturing data from the country would suggest otherwise.”

In other news, KBC analysts said workers at the oil port of Fos, Lavera, in southern France launched rolling strikes to secure jobs and pensions, as the European “autumn of discontent” continued. Tens of thousands of people marched on the European Union's Brussels headquarters on Sept. 29 in a series of coordinated protests against austerity measures that included Greece, Spain, Portugal, Ireland, Slovenia, and Lithuania. The Lavera strike blockaded 24 vessels from the port, 9 of which are reported to be carrying crude while 15 product tankers and some gas vessels were also affected. The French Union for Petroleum Industries (UFIP) said operations at seven of the eight refineries in France and Switzerland that are dependent on Lavera are now at risk.

Energy prices
The November contract for benchmark US light, sweet crudes jumped by $1.61 to $81.58/bbl Oct. 1 on the New York Mercantile Exchange. The December contract escalated $1.55 to $82.50/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.61 to $81.58/bbl. Heating oil for November delivery increased 2.6¢ to $2.29/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month gained 5¢ to $2.09/gal.

The October natural gas contract dropped 7.5¢ to $3.80/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 16¢ to $3.67/MMbtu.

In London, the November IPE contract for North Sea Brent crude gained $1.44 to $83.75/bbl. Gas oil for October climbed $13 to $719.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up $2.04 to $79.52/bbl. So far this year, OPEC’s basket price has averaged $75.27/bbl, up from an average $61.06/bbl for all of 2009.

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

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

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Cognitive Solutions for Upstream Oil and Gas

When 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

When 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



On Demand

Prevention, Detection and Mitigation of pipeline leaks in the modern world

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


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


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