MARKET WATCH: Crude oil prices continue to climb

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 12 -- The front-month crude contract continued climbing Jan. 11 in the New York market, up 2% as two North Sea fields came offline and the Trans-Alaska Pipeline remained closed. Natural gas prices gained 1.8% on forecasts for continued cold weather.

“Energy stocks drove the broader market higher, with the S&P 500 closing up 0.4%,” said analysts in the Houston office of Raymond James & Associates Inc.

However, Olivier Jakob at Petromatrix, Zug, Switzerland, reported, “Interruptions on the Eugene platform in the US Gulf of Mexico made big headlines yesterday and was detailed much later as a 1-hr interruption; interruption on the Snorre and Vigdis platforms in the North Sea made as well big headlines, but the fields are already back on line today. That leaves the interruption on the Trans-Alaska Pipeline, which has restarted overnight on a temporary basis to prevent the risk of freezing. Russia has stopped oil deliveries to Belarus, but that is normal price ‘negotiation’ tactics for Russia.”

The 630,000 b/d Trans-Alaska Pipeline will run at a reduced rate for a couple of days while a 24-in., 170-ft bypass around the leaking pump station is readied for installation. The pipeline again will have to be shut down when the bypass is installed (OGJ Online, Jan. 11, 2011). The process in cold weather could cause equipment failures and another oil spill, officials said. However, if the pipeline were to be idle too long, oil storage could fill and the unmoving oil in the pipeline could cause damage to it and to North Slope wells. Alyeska Pipeline Service Co., operator, indicated the pipeline may be operating normally by Jan. 14.

US inventories
The Energy Information Administration said Jan. 12 commercial US crude inventories fell 2.2 million bbl to 333.1 million bbl in week ended Jan. 12, exceeding the Wall Street consensus for a 1.4 million bbl decline. Crude inventories remain above average for this time of year. On the other hand, gasoline stocks jumped by 5.1 million bbl to 223.2 million bbl, also above average. Analysts were expecting an increase of 2.1 million bbl. Finished gasoline inventories decreased while blending components inventories increased during the week. Distillate fuel stocks were up 2.7 million bbl to 164.8 million bbl, compared with market expectations of a 1 million bbl build. It too is above average, EIA officials said.

The American Petroleum Institute earlier reported US crude inventories inched up just 57,000 bbl to 337.1 million bbl in the week ended Jan. 7. It said gasoline stocks shot up 7 million bbl to 229 million bbl, while distillate fuel increased 1.6 million bbl to 166.5 million bbl.

Imports of crude into the US increased by 449,000 b/d to 8.9 million b/d last week, EIA said. In the 4 weeks through Jan. 7, crude imports averaged 8.7 million b/d, up by 478,000 b/d from the comparable period in 2010. Gasoline imports averaged 871,000 b/d, and distillate imports averaged 368,000 b/d.

The input of crude into US refineries, however, dropped 260,000 b/d to 14.7 million b/d with units operating at 86.4% of capacity, EIA reported. Gasoline production dropped to 8.7 million b/d, while distillates were down to 4.5 million b/d.

WTI-Brent spread
Jakob said, “US gasoline stocks are at multiyear highs for the season, and one of the main reasons why the reformulated blend stock for oxygenate blending (RBOB)-West Texas Intermediate crack has improved over the last 10 days is because of the collapse of WTI vs. North Sea Brent. The RBOB crack to Brent has not improved at all, and the contango on RBOB is increasing. Given that the strong RBOB-WTI crack is solely a function of the wide discount of WTI to Brent, we are of the opinion that it is better to be out of any length on the RBOB-WTI spread and for those that believe in WTI moving to an even greater discount to Brent, then to have to exposure being long Brent vs. WTI rather than being long RBOB vs. WTI.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, observed, “The front month WTI-Brent spread settled at $6.50/bbl [on Jan. 11], the lowest level since February 2009 and amid the height of financial crisis. For the most part of 2010, WTI traded at a discount to Brent, with the average of the spread for 2010 as a whole, coming in at negative 76¢/bbl.”

He said, “There have been three main reasons that have put pressure on the spread. Firstly, US demand had been lagging behind the emerging markets whose imports are more likely to be priced on a Brent basis. Secondly, [oil storage and delivery at] Cushing, Okla., continues to be constrained by its landlocked location. Thirdly, the flow of investment money is shifting from WTI to Brent.”

Since April, Cushing crude inventories have remained at historically high levels, and Standard Bank’s storage model suggests this will continue, “given the positive return on storage for WTI.” In addition, the second phase of the Keystone XL crude pipeline project is expected to come into operation in the first quarter and will increase the crude pipeline capacity from Canada to Cushing (OGJ Online, Dec. 20, 2010). According to US Department of Energy figures, Cushing has a storage capacity of 45.8 million bbl as of Sept. 30th and a current inventory level of 36.6 million bbl. “However, it has been reported that Cushing capacity should be as high as 56 million bbl,” Zhang said.

“With the increasing liquidity in Brent, many major commodity indices increased their exposure to Brent at the expense of WTI,” he said. “The spread is likely to narrow when the Trans-Alaska Pipeline returns to normal services. However, the spread will nevertheless remain under pressure for the coming months due to slow pick-up in US demand and Cushing storage constraints.”

Energy prices
The February contract for benchmark US sweet, light crudes escalated by $1.86 to $91.11/bbl Jan. 11 on the New York Mercantile Exchange. The March contract climbed $1.78 to $92.36/bbl. On the US spot market, WTI at Cushing, Okla., was up $1.86 to $91.11/bbl. Heating oil for February delivery gained 5.27¢ to $2.61/gal on NYMEX. RBOB for the same month increased 2.41¢ to $2.48/gal.

The February natural gas contract rebounded, up 82¢ to $4.48/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 8.6¢ to $4.40/MMbtu.

In London, the February IPE contract for North Sea Brent crude gained $1.91 to $97.61/bbl. Gas oil for January climbed $12 to $794.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up $1.59 to $92.92/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

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...

MARKET WATCH: Oil, natural gas close up in waffling markets

08/23/2013 The October contract for benchmark US light, sweet crudes on the New York Mercantile Exchange increased $1.18 to $105.03/bbl Aug. 22. The November ...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


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