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 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

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