MARKET WATCH: Gas prices climb as crude falls to pre-Christmas levels

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 5 -- The price of crude oil fell 2.4% to pre-Christmas levels below $90/bbl Jan. 4 in the New York market, but natural gas futures hit a new 5-month high for the second time in as many days in anticipation of a larger-than-average decline in US gas storage due to cold weather.

“Oil suffered from a heavy sell-off after it hit a new 27-month high on [Jan. 3],” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “It is likely the sell-off was driven by profit-taking as the rally during the holiday week was not based on any underlying changes to the fundamental picture.”

He said, “Cracks and margins are generally stronger, with products tending to fare better than crude. Term structures all weakened significantly, however, with the sell-off being more pronounced at the front end of the curve.”

Standard Bank analysts question the sustainability of oil price above $90/bbl and expect to see some price weakness in January. “We also expect to see a narrowing of both the spread between Brent and West Texas Intermediate and the large gap between refining margins in Europe and those in the US,” Zhang said.

Analysts in the Houston office of Raymond James & Associates Inc. said, “Despite a better-than-expected report for US factory orders, the Standard & Poor’s 500 Index fell marginally as comments from the US Federal Reserve's December meeting reflected concerns for economic growth amid the lackluster employment picture.” They said, “Taking the cue from crude, energy stocks underperformed the broader market.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “Given the extreme correlation between WTI and the S&P 500, the global risk is to see the liquidation in WTI starting to negatively impact the equity markets. The US Federal Reserve support of the S&P 500 is at risk to weaker oil prices, this when the International Energy Agency is making headlines by calling the higher oil prices a threat to the world economy.”

Meanwhile, Jakob said, “Large speculators have been driving the oil rally in the last quarter of 2010; they are holding record-high net long positions and have managed to mark their end-of-the-year profit and loss at the highest price of the year. During the rally from $70/bbl to $90/bbl swap dealers went from being the main long [investors] in the market to being slightly short.”

He noted, “As we have been pointing out for some time, the moment large speculators (which by nature are short-term traders, not buy-and-hold investors like pension funds) decide to take some profit on their record long WTI positions, the correction will be severe. The ‘shooting star formation’ [of the Jan. 3 price escalation] was a reversal warning that was confirmed by [the Jan. 4 sell-off]. If more large speculators decide to take profit on their record WTI long positions rather than roll them in a $1/bbl contango loss, then the risk according to normal profit-taking pattern will be to see a slide that could take WTI to the $80-82/bbl range.”

Zhang said, “We remain cautious given that we ended 2010 with a historically high inventory level and as we move into the normal seasonal inventory building period, between January and May.”

US inventories
The Energy Information Administration said Jan. 5 commercial US crude inventories fell 4.2 million bbl to 335.3 million bbl in the week ended Dec. 31. That was more than twice the Wall Street consensus for a 2 million bbl drop; yet crude stocks remain above average for this time of year. Gasoline inventories increased by 3.3 million bbl to 218.1 million bbl, exceeding Wall Street’s expectations for a 500,000 bbl build. Finished gasoline stocks decreased while blending components increased. Distillate fuel inventories gained 1.1 million bbl to 162.1 million bbl, also above average. Analysts were expecting only a 700,000 bbl increase.

The American Petroleum Institute earlier reported a 7.5 million bbl drop to 337.1 million bbl in crude stocks during that same period. It said gasoline inventories jumped by 5.6 million bbl to 222 million bbl, and distillate fuel stocks gained 2.2 million bbl to 164.9 million bbl.

Imports of crude into the US fell 367,000 b/d to 8.4 million b/d last week, EIA reported. In the 4 weeks ended Dec. 31, crude imports averaged 8.4 million b/d, up by 458,000 b/d from the comparable period in 2010. Total gasoline imports last week averaged 513,000 b/d, with distillate fuel imports averaging 156,000 b/d.

The input of crude into US refineries increased by 59,000 b/d to 15 million b/d in the final week of December, with units operating at 88% of capacity, EIA said. Gasoline production decreased to 8.9 million b/d and distillate fuel production declined 4.6 million b/d.

Energy prices
The February contract for benchmark US light, sweet crudes closed at $89.38/bbl Jan. 4 on the New York Mercantile Exchange, down $2.17 for the day after trading at $88.36-92.07/bbl during that session. The March contract dropped $2.01 to $90.42/bbl.

On the US spot market, WTI at Cushing, Okla., was down $2.17 to $89.28/bbl. Heating oil for February delivery lost 4.63¢ to $2.51/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month continued its decline, down 1.33¢ to $2.41/gal.

The February contract for natural gas increased 1.9¢ to $4.67/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., rallied by 7.8¢ to $4.59/MMbtu.

In London, the February IPE contract for North Sea Brent declined $1.31 to $93.53/bbl, “which widened the front-month WTI-Brent spread to a massive $4.15/bbl, a level last seen during September,” Zhang said. Gas oil for January dropped $25 to $767.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained $1.48 to $91.27/bbl. The OPEC secretariat will be closed Jan. 6-7 with no price updates.

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