MARKET WATCH: Energy prices continue climbing in international markets

Sam Fletcher
OGJ Senior Writer

HOUSTON, Dec. 6 -- Energy prices continued climbing Dec. 3 with crude hitting a 25-month high in New York as the US dollar dipped to its lowest level since Nov. 23, US payrolls increased less-than-expected in November, and the jobless rate unexpectedly rose to 9.8%.

“This prompted investors to switch from the dollar to commodities,” said analysts in the Houston office of Raymond James & Associates Inc. Higher oil prices helped drive outperformance in energy stocks, and the broader market also closed up slightly. Natural gas traded higher, with the National Weather Service predicting below-average temperatures in the eastern third of the US during Dec. 11-15.

Crude prices “have hit their 2010 peak levels,” with the January contract for North Sea Brent above the “psychologically important” $90/bbl, boosted by icy weather in northern Europe. “The $90/bbl level is important because many…believe that economic growth could start to suffer if prices rise much above this,” said analysts at KBC Energy Economics, a division KBC Advanced Technologies PLC in Surrey, UK.

They reported, “Heavy snow and freezing weather has afflicted much of northern Europe, much earlier in the heating season than usual. In the US, heating oil stocks have been plunging from their autumn peaks, and in Europe strong demand has been reported for heating oil in the main consuming regions, adding to tightness in middle distillates prompted by the recent heavy Chinese buying. Although meteorologists concur that this winter is likely to be unusually cold, there is no consensus over quite how cold it will get. Flying in the face of global-warming scenarios, Polish weather forecasters have predicted this winter will be the coldest in 1,000 years because the warming flows of the Gulf Stream have diminished. If the trend continues, they say, most of Europe will become a permafrost area.”

Meanwhile, both West Texas Intermediate and North Sea Brent crude “flipped rather decisively from contango to backwadation” last week. “Cracks of both gasoline and gasoil strengthened, while fuel oil cracks weakened,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. Front-month WTI had a 6.5% net gain last week, while front-month Brent “broke above the psychologically important $90/bbl,” he reported.

“The turning point of the market was when the European Central Bank indicated at the beginning of last week they would extend their bond purchasing. The strong rally is in contrast to the mildly bearish Department of Energy inventory report on Dec. 1 and a disappointing US jobs report on Dec. 3,” Zhang reported.

However, he said, “Looking ahead, we note the European sovereign debt crisis has been delayed rather than resolved. The Chinese government is now prompting more ‘prudent’ policies rather accommodative policies. US oil demand is still subdued. The oil price has been driven predominantly by the excessive liquidity. We do not believe oil prices above $90/bbl and the recent backwardation can be sustained for long.”

Economic outlook
General macro-economic data were mixed earlier in the week, “but the trading momentum was so strong that worse-than-expected outcome was quickly ignored and anything better than expected was brought to the front stage,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “The same continued Dec. 3 when the non-farm payrolls and unemployment rate coming out much worse than expected was quickly ignored by the global market as a non-significant input.”

Jakob said, “Nevertheless, we still feel that lower unemployment is necessary for economic recovery and oil demand. The nonfarm payroll only added 39,000 jobs compared to the 150,000 that were expected. The breakdown of the data is even worse as there [were losses] of 18,000 [jobs] in manufacturing [and] 28,000 in retail, while on the positive side there was an increase of 47,000 in ‘administrative and waste services,’ which is including a 40,000 increase in temporary services. Since the end of June 2009, which was the official end of the recession, private jobs have increased by 203,000—a number that includes a 460,000 increase in temporary services and a 134,000 decrease in manufacturing. What job improvement there has been since the official end of the recession has been in the extremely low-paying sector of temporary service. An economy cannot be rebuilt with job creation concentrated in the $10,000-20,000/year temporary service sector.”

Federal Reserve Chairman Ben Bernanke acknowledged Dec. 5 on CBS’ “60 Minutes” news program the US economy is still fragile and therefore Congress should neither cut spending nor boost taxes. He predicted it may take 4-5 years for unemployment, now at 9.8%, to return to its normal historic level of 5-6%.

“Unfortunately Bernanke is not able to lift the spirits in China, and the Shanghai composite is the main market that stayed downbeat last week and is down 13.26% for the year (down15.09% on the Shanghai A exchange).” Jakob reported. “There was a total of $39.5 billion of primary open market operations (POMOs) done by the US Fed last week, including some back-to-back deals of buying from primary dealers notes that were issued by the Treasury on the same day. This week there will $18.5 billion of POMO conducted.”

There is no sign the Fed’s two rounds of quantitative easing by buying back Treasuries— QE ‘Light’ and QE2—has halted outflows from equity mutual funds, “and volume on the New York Stock Exchange has not seen any improvement,” he said. “To the contrary it is continuing its declining trend. The latest data from the Fed (for the week ending Nov. 24, which basically covers the first week of QE2) shows an increase of cash in US commercial banks of $80 billion. That is too early to call a trend as the weekly data has shown some large week-to-week variation, but given that QE1 resulted more in an increase of cash in vaults than a push of money to the economy, it is a set of data that we will have to continuously monitor again. If asset prices are indeed higher than at the start of QE Light and QE2, it is for now difficult to make the claim that it is driven by liquidity hitting the markets. For now it seems that markets are driven more by fear than by facts, with volume not improving on the NYSE and outflows not stopping.”

Zhang said, “The range-bound pattern of the oil price so far this year shows that the oil market has been firmly anchored by supply and demand fundamentals. These fundamentals are weak — but improving. Our view is that oil price will stay range-bound this year. The market is under downward pressure from European sovereign debt concerns and potential further policy tightening in China. At the same time, US economic growth has shown strong momentum recently, which represents the most significant upside risk to oil.

Energy prices
The January contract for benchmark US light, sweet crudes continued climbing, up $1.19 to $89.19/bbl Dec. 3 on the New York Mercantile Exchange. The February contract rose $1.17 to $89.59/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.19 to match the front-month futures contract at $89.19/bbl. Heating oil for January delivery increased 3.28¢ to $2.49/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dipped by 0.32¢ to $2.35/gal.

The January natural gas contract inched up 0.6¢ to $4.35/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., advanced 4.1¢ to $4.27/MMbtu.

In London, the January IPE contract for Brent increased 73¢ to $91.42/bbl. Gas oil for December gained $11.25 to $761.75/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 99¢ to $87.13/bbl. So far this year, OPEC’s basket price has averaged $76.48/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

MARKET WATCH: NYMEX, Brent crude oil prices rebound more than $1/bbl

07/10/2015 Prices for US light, sweet crude oil and Brent crude each rebounded by more than $1/bbl on their respective markets July 9, and analysts attributed...

Transco seeks FERC approval for New York Bay Expansion project

07/09/2015 Transcontinental Gas Pipe Line Co. LLC (Transco), a wholly owned subsidiary of Williams Partners LP, has filed an application with the US Federal E...

House Oversight panel subpoenas Kerry for Keystone XL documents

07/09/2015 The US House Oversight and Government Reform Committee issued a subpoena to US Sec. of State John F. Kerry for reports, recommendations, letters, a...

MARKET WATCH: NYMEX crude oil prices drop for fifth consecutive trading session

07/09/2015 US light, sweet crude oil prices settled slightly lower on the New York market July 8 for the fifth consecutive trading session, and analysts attri...

Ending crude export ban would help rural US areas, House panel told

07/09/2015 Rural US communities generally have benefited from the nation’s crude oil production renaissance, and potentially could be helped more if restricti...

MOL completes Ithaca Norge acquisition

07/09/2015 MOL Group, Budapest, has completed its acquisition of Ithaca Petroleum Norge from Ithaca Energy Inc. for $60 million plus possible bonuses of up to...

Courts less deferential to regulatory agencies, GMU forum told

07/08/2015 US Supreme Court decisions in the recently completed term suggest that judicial deference to federal regulatory agencies is starting to recede, spe...

AER orders Apache Canada to address integrity of pipeline system

07/08/2015 Alberta Energy Regulator has directed Apache Canada Ltd. to address the integrity of its pipeline management system because of “failure to follow p...

API releases pipeline safety recommended practice

07/08/2015 The American Petroleum Institute released a pipeline safety recommended practice that it developed with engagement from the US Pipeline and Hazardo...
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