MARKET WATCH: Fed's QE2 fails to stimulate markets

Sam Fletcher
OGJ Senior Writer

HOUSTON, Nov. 16 -- Crude oil prices for December and January slipped a few cents lower Nov. 15 in New York and the broader equity markets remained relatively flat as concerns continued to build over the US Federal Reserve Bank’s second round of quantitative easing (QE2).

Oil briefly recovered from the Nov. 12 sell-off on Nov. 15, but “most of gains were given back by end of the day as concerns over the Irish debt situation triggered a further bout of liquidation,” said Leon Westgate at Standard New York Securities Inc., the Standard Bank Group.

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “The Federal Reserve Bank of New York’s general economic index fell to 11.1 in November from 15.7 in October, signaling that the manufacturing in the New York region actually contracted for the first time in more than a year. Economists were expecting that the index would fall to just 14 in November.”

Sharma said, “Retail sales, which grew by 1.2% vs. consensus of a 0.7 % increase, were the sliver lining in Nov. 15 economic data. The ominous signs of contraction in manufacturing could keep prices under pressure as manufacturing has been the backbone of recovery so far this year. However, prices will continue to be dominated by the European debt-crisis driven events, which continue to play out in the currency markets as Ireland and Portugal struggle to put their finances in order.”

Analysts in the Houston office of Raymond James & Associates Inc said, “Economic uncertainty isn't just a concern here in the US.” They noted, “Additional action was taken by Asian governments to cool growth…. [O]n the other end of the spectrum, speculation of European debt issues is beginning to reemerge. Mixed economic data points abound, as the broader market looks to hold onto its gains over the past 2 months.”

However, Raymond James analysts said the price of natural gas climbed 1.1% to recover some of its losses from Nov. 12 on forecasts of cooler temperatures toward the end of November. Crude prices were still down and gas was fairly mixed in early trading Nov. 16.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “The wealth creation dreamed up by [Federal Reserve Chairman Ben] Bernanke is nowhere to be seen, and it is all the fault of the Irish and the Chinese. Ireland is dragging its feet to accept the European bail-out and that continues to pressure the euro to the downside.”

Jakob said, “Many hedge funds had hoped that QE2 would translate into a collapse of the dollar, but the euro is proving once again that it is not a safe haven. The Chinese meanwhile continue to be worried about the very strong inflation in commodity prices. Overnight the Chinese stock market was again sharply down on fears of upcoming state intervention to control commodity inflation.”

Meanwhile, money managers pushed their net length in crude futures to the highest level this year, the Commodity Futures Trading Commission reported Nov. 9, a week after the Fed announced QE2. “However, producers have been reluctant to hedge their production. The net short position held by the large commercial players, remains well below the levels seen earlier this year, although it had been gradually increasing in recent weeks,” said Westgate.

He said, “While economic uncertainty in the middle of this year saw producers take the opportunity presented by previous rally in May to hedge, thereby increasing their net short position, the latest rally has not had the same impact. Although the flat price has reached a similar level to the recent highs in May, the net short position is much smaller, as producers appear to be holding out for even higher prices over the coming months.”

Money managers (predominantly long-only speculative investment) and swap dealers (mainly large investment banks who act on behalf of their clients) took opposite positions in the market, with money managers long on crude in the New York market and swap dealers short. “This represents the widest divergence between the two groups of market participants seen so far this year,” said Westgate. “It is also worth noting that the swap dealers had generally been long up until end of October.”

Apparently battle lines are being drawn. “At the moment, both sides seem to be in a stalemate, however, with the absence of producers in the market and that link to the underlying market, the price action over the coming months may be particularly volatile indeed,” Westgate said.

On the supply side, production was suspended at ExxonMobil Corp.’s 100,000 b/d Oso field in Nigeria due to kidnapping activity by rebels. “Attacks on oil installations were also reported in Kenya. “The supply disruptions have so far had limited impact on prices thanks to high inventories, with exogenous factors continuing to dominate price behavior,” said Westgate.

Sharma reported a maintenance-related temporary shut-in of 500 Mcfd of gas at the Independence Hub in the Gulf of Mexico. He said, “Production was shut-in over the weekend but is expected to come back to the normal level by Nov. 17.”

Energy prices
The December contract for benchmark US light, sweet crudes dipped 2¢ to $84.86/bbl Nov. 15 on the New York Mercantile Exchange. The January contract lost 5¢ to $85.29/bbl. On the US spot market, WTI at Cushing, Okla., was down 2¢ to $84.86/bbl. Heating oil for December delivery increased 0.77¢ to $2.37/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dropped 1.49¢ to $2.20/gal.

The December natural gas contract gained 4.6¢ to $3.85/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., closed at $3.57/MMbtu, down from $3.75/MMbtu on Nov. 11, the last available date.

In London, the December IPE contract for North Sea Brent crude climbed 36¢ to $86.70/bbl. The new front-month December contract for gas oil dropped $3.50 to $738.75/tonne.

The Organization of Petroleum Exporting Countries' Vienna office was closed Nov. 16, so there was no price update for its basket of 12 reference crudes.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

Bear Head LNG requests DOE permits to export US natural gas

03/03/2015 Liquefied Natural Gas Ltd.’s wholly owned subsidiaries, Bear Head LNG Corp. and Bear Head LNG LLC (USA), have filed an application with the US Depa...

EIA forecasts continued rise in US oil production from gulf

03/03/2015 Crude oil production from the Gulf of Mexico will reach 1.52 million b/d in 2015 and 1.61 million b/d in 2016—or respectively 16% and 17% of total ...

Pennsylvania governor proposes natural gas severance tax

03/03/2015 Pennsylvania Gov. Tom Wolf proposed a $29.9 billion budget on Mar. 3 that includes $2.5 billion of net tax increases for fiscal 2016, including a 5...

Shell moves to business-as-usual plan for strike-impacted refineries

03/03/2015 As the United Steelworkers union (USW) strike enters its fifth week, Royal Dutch Shell PLC, which serves as lead company for National Oil Bargainin...

BOEM proposes lease sale for western Gulf of Mexico

03/03/2015 The US Bureau of Ocean Energy Management (BOEM) will offer more than 21 million acres offshore Texas for oil and gas exploration and development, i...

Shell Canada withdraws application for Pierre River heavy oil project

03/03/2015

Shell Canada Ltd. has withdrawn its regulatory application for the proposed Pierre River heavy oil mine north of Fort McMurray.

Anadarko cuts spending, stalls well completions

03/03/2015 Anadarko Petroleum Corp. on Mar. 3 said it will cut spending 33% during 2015 compared with 2014 and will reduce drilling and defer 125 onshore well...

Petrobras to divest $13.7 billion in 2015-16

03/03/2015 Petroleo Brasileiro SA (Petrobras) plans to divest $13.7 billion in 2015-16, up from the previously reported $5-11 billion in the company’s busines...

Report notes strong Saudi fiscal ‘buffers’

03/03/2015 Saudi Arabia has fiscal buffers enabling it to cover projected deficits while oil prices are low for at least 4 years and perhaps more than 8 years...
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