MARKET WATCH: Crude oil hits highest closing price since early April

Sam Fletcher
OGJ Senior Writer

HOUSTON, Nov. 5 -- The price of December crude jumped 2.1% Nov. 4 to the highest level for a New York front-month contract since Apr. 6 as the market continued its reaction to the Federal Reserve Bank’s decision to buy $600 billion of Treasuries over the next 8 months to stimulate the US economy.

It was the fourth consecutive price hike for crude this week. The December natural gas contract increased 0.5%, regaining most of its loss from the previous session.

Analysts in the Houston office of Raymond James & Associates Inc. said, “Apparently, the market needed some time to make up its mind about the Fed's latest round of quantitative easing (QE2). After posting modest gains [on Nov. 3], the broader market screamed higher yesterday with the Standard & Poor’s 500 Index (up 1.9%) reaching levels not seen since 2008.” They said energy corporate stocks “took the cue from crude,” outperforming the broader market.

The Fed’s monetary stimulus plan furthered weakened the US dollar, which fell 0.4% against the euro to the lowest level since Jan. 20, encouraging investors to shift their money to the riskier commodities of oil and gold. Gold prices surged 2.5%, the biggest 1-day jump in nearly 6 months.

“We don’t see crude decoupling from the currency markets in the near future as the reactions about the US’s looser monetary policy will keep this pot boiling,” said Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston. “The Fed also kept the benchmark funds rate unchanged at 0.25% as economic recovery remains disappointing slow.”

The dollar exchange rate and equity market trends “are working in favor of even higher oil prices,” said Adam Sieminski, chief energy economist for Deutsche Bank in Washington, DC. However, he said, “We would be more convinced of the sustainability of the oil price rally if it were accompanied by an elimination in contango in the crude oil forward curve and improvements in fundamentals.”

Sieminski said, “The recovery in middle distillates demand growth has been more robust relative to other fuels.” Demand growth among nonmembers of the Organization for Economic Cooperation and Development—specifically Asian countries—continues to outpace the developed world. “In our view, these two features of the market will persist, which has implications for supply-demand balances from a seasonal perspective as well as price trends,” he said.

Meanwhile, Walter de Wet at Standard New York Securities Inc., the Standard Bank Group, said, “We believe that the Commodity Futures Trading Commission data released later today is likely to show that noncommercial long positions have increased from already high levels last week.” The weekly CFTC report last week showed net speculative length in crude pushed higher last week, while net speculative length in oil products declined.

De Wet said, “The current level of the speculative length in oil could cause oil prices to pull back very sharply despite the Fed’s QE2 program. To highlight the risk of such a correction, there were two previous big drops in oil prices when net speculative length had reached current levels. One was in January-February, another was April-May. We believe that commodity markets are pricing in QE2 already, and commodities will not necessarily continue to rally. We need new data to support higher prices.”

The biggest immediate threat to the current commodity price rally is “another round of tightening in monetary policy in China,” he said.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “We continue to believe that QE2 is better played in equities than in oil futures. Oil prices are already back to the end 2007 levels, but the oil fundamentals are nowhere near those of 2007, and we continue to expect that higher commodity prices will be met with increasing hectic reactions from the CFTC (never mind that it is the Fed fueling the commodity price hike).”

In its just-published medium-term outlook for crude, the Organization of Petroleum Exporting Countries assumes oil prices will stay at $75-85/bbl until 2020. “They have a Call-On-OPEC for 2014 at 30.4 million b/d, i.e. only 1.2 million b/d higher than the current production and 1.6 million b/d less than the 2007 Call-On-OPEC,” Jakob noted. “It is easy to discount anything that comes out of OPEC, but we need to keep in mind that the International Energy Agency also is not calling for an increase in the Call-on-OPEC for next year. In the meantime, unresolved unemployment and rising oil prices are not a positive for oil demand, and it is at those price levels that US oil demand started to get hit at the end of 2007.”

Energy prices
The December contract for benchmark US light, sweet crudes traded at $84.92-86.83/bbl Nov. 4 before closing at $86.49/bbl, up $1.80 for the day on the New York Mercantile Exchange. The January contract climbed $1.81 to $87.16/bbl.

On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.80 to $86.49/bbl, once more in lockstep with the front-month futures price. Heating oil for December delivery gained 4.52¢ to $2.33/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 3.91¢ to $2.18/gal.

The December natural gas contract recovered 2¢ to $3.86/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 13.9¢ to $3.51/MMbtu. Meanwhile, the Energy Information Administration reported the injection of 67 bcf of natural gas into US underground storage in the week ended Oct. 29. That put working gas in storage above 3.8 tcf—up 37 bcf from the comparable period last year and 353 bcf above the 5-year average (OGJ Online, Nov. 4, 2010). “Weak supply and demand balances suggest excess storage will persist across the winter,” Sieminski said.

In London, the December IPE contract for North Sea Brent crude was up $1.62 to $88/bbl. Gas oil for November gained $15.25 to $737.50/tonne.

The average price for OPEC’s basket of 12 reference crudes rose $1.77 to $84.33/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

Advocates urge US to end its crude export ban in Iran agreement’s wake

07/15/2015 Advocates called for removing the US ban on exports of domestically produced crude oil in the wake of the July 14 international nuclear weapons agr...

Operators seen still able to raise capital

07/15/2015 Oil and gas operators remain able to raise capital despite falling crude oil prices and, for many, deteriorating financial conditions, according to...

MARKET: NYMEX crude oil prices rise following news of Iran deal

07/15/2015 Light, sweet crude oil prices settled higher on the New York market July 14 following overnight news that Iran reached a tentative agreement with i...

WPX Energy to buy privately held RKI E&P in $2.35 billion deal

07/15/2015 WPX Energy Inc. agreed to buy privately held RKI Exploration & Production LLC of Oklahoma City for $2.35 billion in a move intended to help WPX...

US House panel grills PHMSA’s interim chief over pipeline safety delays

07/14/2015 Members of a US House Energy and Commerce subcommittee asked US Pipeline and Hazardous Materials Safety Administration Interim Executive Director S...

Market seen balancing with OPEC at target

07/14/2015 Target-level production of crude oil by members of the Organization of Petroleum Exporting Countries would balance the oil market in 2016, accordin...

MARKET WATCH: Crude oil futures prices settle lower on Iran uncertainty

07/14/2015 Crude oil futures prices alternated between gains and losses in July 13 trading before settling lower on both the New York and London markets on un...

PHMSA issues state pipeline excavation damage prevention programs rule

07/14/2015 The US Pipeline and Hazardous Materials Safety Administration issued a final rule to establish the process for evaluating state excavation damage p...

Halliburton, Baker Hughes agree to extend DOJ review of planned merger

07/13/2015 Halliburton Co. and Baker Hughes Inc. reached a timing agreement with the US Department of Justice’s Antitrust Division to extend DOJ’s review of H...
White Papers

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

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts

On Demand

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


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

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


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