MARKET WATCH: Crude price declines on expectations OPEC will raise quota

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 7 -- Crude oil prices fell June 6 for the second consecutive session, with the decline steepening to more than 1% and dropping below $100/bbl among general expectations that ministers of the Organization of Petroleum Exporting Countries will raise production quotas at their regular June 8 meeting in Vienna.

“The broader markets lost their footing and fell 1% yesterday as investors remained concerned about the country's economic outlook,” said analysts in the Houston office of Raymond James & Associates Inc. “Natural gas managed to keep its head up and tore through a series of resistance levels to end the day up 2.4% on hotter weather forecasts. The SIG Oil Exploration & Production Index and Oil Service Index both fell 3% on oil and broader market weakness.” Energy prices were down further in early trading June 7.

“OPEC is the focus this week as its member countries assemble…for their first official meeting since early December,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “During the last 6 months, market dynamics have changed substantially, firstly on the heels of the Libya conflict that has taken out of the market most of Libya’s crude output, and secondly the Japanese earthquake that forced a number of refineries to shut down and caused Japan’s domestic oil demand to drop.”

Zhang said, “In a broader context, the global economy showed strong momentum in the first quarter. However, recent macroeconomic data signal a slowdown in the US and some cooling of the Chinese economy on further monetary tightening there in order to tame inflation.”

OPEC’s current production quotas have been in place since September 2008 when global oil demand and prices collapsed during the most severe recession since World War II. Oil demand and prices recovered on the back of global growth in 2010, however.

This year, said Zhang, “The collective compliance level of OPEC member countries was fairly stable, around 55% (calculated as total overproduction above the quotas divided by the total 4.2 million b/d production cut agreed in September 2008).”

In February as the civil war in Libya escalated, OPEC members with the largest spare capacity—Saudi Arabia, the UAE, and Kuwait—increased production to partly offset the Libyan shortfall. “The latest data reveal that the May production from Saudi Arabia, Kuwait, and the UAE increased by 525,000 b/d, 195,000 b/d, and 110,000 b/d respectively from those in January, while Libya’s crude output fell by 1.4 million b/d in May, compared to January” Zhang reported. However, he said, “Despite the increase from OPEC members other than Libya, total OPEC production fell by 500,000 b/d in May.”

He expects OPEC to raise production quotas by 1-2 million b/d, “effectively rectifying most of the current overproduction.” However, he said, “This should have limited impact on the physical oil market.”

Meanwhile, term structures of West Texas Intermediate and North Sea Brent weakened slightly on June 6. “Oil products largely followed crude after recent gains in cracks,” Zhang said. “Distillates are showing counter-seasonal strength, while gasoline is lagging despite the US driving season. Consequently, we expect refineries to shift production yields more towards distillates in the coming weeks.”

In other news, violent confrontations between government loyalists and demonstrators escalated in Syria and Yemen. As many as 120 police and security forces were reported killed in Syria, while Yemen’s president has left the country for medical treatment.

Zhang sees “increasing risks of further a downward correction in oil prices.” He said, “Any changes to OPEC quotas would be largely symbolic, as member countries have been overproducing. However, the stance of the organization’s willingness to increase the quotas is likely to weigh on bullish sentiment.”

Saudi Arabia’s production level will have more relevance than any formal agreement at tomorrow’s OPEC meeting, said Olivier Jakob at Petromatrix, Zug, Switzerland. He noted reports by Reuters news service that Saudi oil production is expected to reach 9.6 million b/d this month.

“That level of Saudi production would bring OPEC production levels to about 29.7 million b/d, and that would compare with a call-on-OPEC by the International Energy Agency of 29.7 million b/d,” Jakob reported. “Hence on a global basis, the Saudi production increase would prevent global stock draws in 2011.”

Meanwhile, the Standard & Poor’s 500 index “continues to correct lower and has broken the lows set in mid-April. The next big support line moves down to 1,257.64, which is the start-of-the-year level,” said Jakob.

WTI tried unsuccessfully to regain its 100-day moving average price during the June 6 session. “For the last 20 trading days, WTI has been well supported on the lows but not well bid (i.e. no follow-though buying). Large speculators are still extremely long [on] WTI, and we are back to price levels where returns on WTI length are flat for the year after the roll costs,” Jakob said.

Energy prices
The July contract for benchmark US sweet, light crudes fell $1.21 to $99.01/bbl June 6 on the New York Mercantile Exchange. The August contract dropped $1.20 to $99.60/bbl. On the US spot market, WTI at Cushing, Okla., was down $1.21 to $99.01/bbl, in step with the price of the front-month futures contract.

Heating oil for July delivery declined 3.93¢ to $3.02/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 4.32¢ to $2.95/gal.

However, both the July natural gas contract on NYMEX and the spot market price of gas at Henry Hub, La., gained 12¢ each, to $4.83/MMbtu and $4.84/MMbtu, respectively.

In London, the July IPE contract for Brent crude lost $1.36 to $114.48/bbl. Gas oil for June dipped by 75¢ to $950/tonne.

The average price for OPEC’s basket of 12 reference crudes retreated 33¢ to $110.11/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