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

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

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
Available Webcasts


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


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


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