Egyptian riots lift oil prices

Sam Fletcher
OGJ Senior Writer

After waffling all week, the March contract for West Texas Intermediate shot up $3.70 to $89.34/bbl Jan. 28 on the New York Mercantile Exchange as civil unrest in Egypt put Wall Street in a panic. It was its highest price since becoming the front-month contract Jan. 21.

Despite a Western tendency to consider recent riots in Tunisia and Egypt as “North Africa fighting for more democracy,” Olivier Jakob at Petromatrix in Zug, Switzerland, said the one common problem is commodity inflation. The riots “really started this year in La Paz, Bolivia, and are unlikely to end in Cairo,” he said. “The last time we had some widespread riots across the globe was in the first half of 2008, and our index of main consumer commodities is now higher than in the summer of 2008 and 17% higher than at the peaks of 2008 when measured on a euro basis.”

In addition to its growing oil production in the desert away from the urban riots, Egypt is “a key transit point for oil shipments out of the Persian Gulf, via the Suez Canal and the Sumed [Suez-Mediterranean] Pipeline,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Closure of the Suez Canal and the Sumed Pipeline would divert tankers around the southern tip of Africa, the Cape of Good Hope, adding approximately 6,000 miles, or about 15 days, to transit time.” Officials report 585,000 b/d of crude passed through the canal in 2009, while 1.1 million b/d flowed through the pipeline.

WTI-Brent spread
The day before the price hike, the price spread between front-month West Texas Intermediate and North Sea Brent crude widened to a record $11.75/bbl in favor of Brent, prompting speculation it might replace WTI as the market’s usually quoted benchmark. In Houston, analysts at Raymond James & Associates Inc. said, “Until the Cushing, Okla., crude storage picture loosens, we're taking our cues from Brent as a more suitable global indicator.”

Paul Horsnell, managing director and head of commodities research at Barclays Capital in London, noted Jan. 26, “Brent prices have held firm above $95/bbl and are currently within $2 of their high for the year. By contrast, the market for WTI has continued to dislocate, with pricing reflecting fears of localized distressed crude and values lagging…below Brent.”

WTI, he said, “has again become decoupled from both the international market and other regional US markets. While the dislocation is active, we do not see WTI prices and price changes as providing much information that is useful to the global market and see Brent as the better indicator of the state of market fundamentals and sentiment.”

On Jan. 28, James Zhang at Standard New York Securities said, “For the week ahead, we expect the tug of war between WTI and Brent to continue, as Brent seems to be targeting $100/bbl again while WTI could breach $85/bbl to the downside. Right now, we see a higher probability of WTI dragging Brent down than the converse. Consumers may therefore…take advantage of the current weakness in the market.”

Brent came within pennies of the $100/bbl price it had been pursuing, closing at $99.42/bbl Jan. 28. However, Jakob at Petromatrix said, “We fail to find the catalysts to justify the need for such a price. On the supply side, there has been a change of tone from the key OPEC members while on the demand side from the Chinese tightening to the riots of North Africa the signs are clear that we are starting to eat into disposable income and the political instability that comes with it. Oil markets are globally not shifting out of the contango structure (the opposite) and apart from momentum trading, we do not see the justification for Brent to be at $100/bbl especially when cash crude in Europe has to be done at weaker differentials.”

(Online Jan. 31, 2011; author’s e-mail: samf@ogjonline.com)

Related Articles

Deloitte studies oil supply growth for 2015-16

02/04/2015 A Deloitte MarketPoint analysis suggested large-field projects, each producing more than 25,000 b/d, could bring on 1.835 million b/d in oil supply...

Oil, gas infrastructure investments essential, House panel told

02/04/2015 Investments in oil and gas transportation and storage should move ahead because they are essential in continuing the US economic recovery and North...

MARKET WATCH: NYMEX crude oil prices reach 2015 high

02/04/2015 Crude oil prices surged more than $3/bbl on the New York market Feb. 3, closing at the highest level so far this year, but some analysts believe th...

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...

BP trims capital budget by $4-6 billion

02/03/2015 BP PLC plans an organic capital expenditure of $20 billion in 2015, down from the previous guidance $24-26 billion. Total organic capital expenditu...

IHS sees second-half end of US output surge

02/03/2015

Expectations are moderating about growth of oil production in the US this year.

Anadarko reports 2014 loss, remains upbeat about Wattenberg

02/03/2015 Anadarko Petroleum Corp. announced a 2014 net loss of $1.75 billion, or $3.47/share diluted, including a net loss of $4.05 billion associated with ...

CNOOC cuts capital budget, starts production from Jinzhou 9-3

02/03/2015 CNOOC Ltd. is slashing its capital budget for 2015 by 26-35% to $11.25-12.86 billion compared with last year’s budget. Capital expenditures for exp...

Seven Group buys into Beach Energy

02/03/2015 Media group Seven Group Holdings, Perth, has bought 13.8% of Adelaide-based Beach Energy Ltd. through share purchases fuelling speculation of a pos...
White Papers

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

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...
Available Webcasts


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

When 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



On Demand

Prevention, Detection and Mitigation of pipeline leaks in the modern world

Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST


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


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