MARKET WATCH: Oil price falls as US credit rating threatened

Sam Fletcher
OGJ Senior Writer

HOUSTON, Apr. 19 -- Energy prices fell Apr. 18 when for the first time ever the Standard and Poor’s credit rating service issued a negative long-term sovereign debt rating outlook for the US, citing increased worry whether the government can handle more than $14 trillion in outstanding debt plus a spending budget larger than its income.

Although they didn’t actually cut the country's top AAA credit rating, S&P officials said the government “might not fully offset” intense credit risks “over the next 2 years.” Some analysts speculated this unusual action might build a fire under Congress and President Barack Obama’s administration to get serious about reducing debt and spending rather than continue raising the debt limit.

A drop in the US government’s credit rating would be a disaster for the US treasury, which would be forced to jack up interest rates to attract investors when it tries to sell new debt or roll over short-term credit. Moreover, investment funds prohibited from holding investments below the top AAA rating would immediately have to dispose of government bonds, driving rates even higher.

It also would have repercussions on the US economy and its currency. The value of the US dollar dropped sharply against the euro and the yen Apr. 18 as investors quickly began selling US debt. Equity and commodity markets also posted losses, while gold and silver prices escalated.

In short, the US was treated by investors as some “basket-case banana republic with a terrible balance sheet and a dysfunctional political system,” said analysts in the Houston office of Raymond James & Associates Inc. In the New York market, they said, “Crude fell 2.3% on the news, as well as reports of reduced production from Saudi Arabia due to a lack of demand. Natural gas dropped 1.6% on forecasts for warmer weather in the eastern US. Weakness across the board weighed on energy stocks.” They reported the crude price was still dropping in early trading Apr. 19 while natural gas and the broader equity market were roughly flat.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, reported, “The announcement has shaken financial markets’ confidence in the US economic recovery and sent the dollar reeling. Lingering fears that the Eurozone debt crisis is worsening and threatens the nascent economic recovery in that region is also adding to the less optimistic outlook. Meanwhile, ongoing concerns over the impact from further Chinese monetary tightening are also weighing on sentiment.”

Oil prices fell “as a darkening economic outlook raised concerns over reduced demand,” said Ground on Apr. 19. “West Texas Intermediate after ending the previous week above $109/bbl has traded below $106/bbl, with a similar move in Brent, which has moved below the $120/bbl mark.”

On the other hand, he said, “We find that Chinese monetary tightening measures have a fairly benign impact on oil prices. Currency devaluation and increasing reserve requirements appear to have no discernable impact. Although credit rationing and higher interest rates seem to have some effect, they are relatively minor when compared to their impact on other commodities, especially the base metals.”

Ground predicted, “Barring any significant developments in the Libyan situation, we expect oil prices to be dominated by the gloomy sentiment regarding the global economy. Equities and the dollar should provide a keen barometer of this sentiment, and consequently we expect crude prices to track these markets. With Asian markets having closed [overnight] in the red, and equity futures pointing to another day of losses on US stocks, the potential for upside in oil prices today [Apr. 19] looks bleak.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said Apr. 18 trading “started with more noise about the likelihood of a debt restructuring in Greece, which by now seems to be inevitable, the 2-year yields on Greek [debt] starting to touch 20%; but that was easily overtaken by the news of S&P starting to downgrade the US outlook to negative.” Prices for crude and for corporate stocks listed on the S&P 500 index “started moving lower, highlighting again the lack of diversification between those two asset class.”

Jakob said, “The S&P downgrade could make the case harder to defend for QE3,” the third phase of the US Federal Reserve System’s “quantitative easing” program to stimulate the economy. He said, “A significant amount of speculative length has come into crude oil on the QE theme, and if convictions start to increase that QE3 will not be able to fly [with investors unwilling to buy Treasury bonds], then we should expect that some of the speculative positions in crude oil will be reduced. Once the weekly statistics are digested, the oil markets are likely to start positioning themselves for the Federal Open Market Committee (FOMC) meeting of next week.”

With markets to be closed Apr. 22 for Good Friday, Jakob said, “There will be a long weekend, but we already know about Libya, about shootings in Syria and in Yemen; on the other hand we are not sure that we know fully what [Ben S.] Bernanke [chairman of the Fed board of governors] will say after the FOMC meeting (for the first time, Bernanke will hold a post-FOMC press conference).”

Jakob added, “The S&P note on the US was surely a catalyst for the price movement yesterday, but we also have to acknowledge that in recent weeks oil is well bid on [Thursdays and Fridays] to price for [post-prayer] protests [on Fridays] in the Arab world, and that risk cover is then sold on Monday once traders get confirmation that there has not been another regime overthrow over the weekend. Trading volume was on the light side yesterday [a Monday].”

Energy prices
The May contract for benchmark US light, sweet crudes traded at $106.54-109.44/bbl on Apr. 18 in the New York Mercantile Exchange before closing at $107.12/bbl, down $2.54 for the day. The June contract dropped $2.53 to $107.69/bbl. On the US spot market, WTI at Cushing, Okla., was down $2.54 to $107.12/bbl.

Heating oil for May delivery declined 4.14¢ to $3.18/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 3.64¢ to $3.25/gal.

The May contract for natural gas lost 6.6¢ to $4.14/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., increased 1.3¢ to $4.21/MMbtu.

In London, the June IPE contract for North Sea Brent retreated $1.84 to $121.61/bbl. Gas oil for May fell $19.75 to 1,004.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down 62¢ to $117.37/bbl.

Contact Sam Fletcher at

Related Articles

Inhofe, Lankford say new BIA rules threaten Osage oil operations

07/10/2015 New US Bureau of Indian Affairs regulations that increase production expenses on tribal lands could put the Osage Nation out of business, Oklahoma’...

House panel’s crude export ban hearing weighs urgency against caution

07/10/2015 A US House Energy and Commerce subcommittee hearing on legislation to repeal the ban on exporting US-produced crude oil quickly broke along party l...

Chevron Phillips Chemical makes executive appointments


Chevron Phillips Chemical Co. LLC has made several executive appointments, all effective Aug. 1.

Twelve workers killed in Nigeria pipeline explosion

07/10/2015 Eni SPA reported that an explosion occurred July 9 at the repair site for the Tebidaba-Clough Creek oil pipeline in Nigeria’s onshore Niger Delta.

Gov. Tomblin forms West Virginia oil, gas safety commission

07/10/2015 West Virginia Gov. Earl Ray Tomblin (D) established the oil and gas safety commission he announced in his 2015 State of the State address. The grou...

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...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

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
Available Webcasts

Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors


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