MARKET WATCH: Expiring oil contract up slightly; gas breaks losing streak

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 22 -- The price of crude inched up modestly June 21 in the New York market despite support from a weaker dollar and a strong US equities market; however, natural gas rose 2% on forecasts for warmer weather, ending a seven-session losing streak.

“The broader market (and the euro) rose for the fourth straight day as the Standard & Poor’s 500 index gained more than 1% on expectations that Greek Prime Minister George Papandreou would win yesterday evening's confidence vote. As anticipated, Papandreou secured the victory, thereby improving Greece's prospects for receiving additional financial aid,” said analysts in the Houston office of Raymond James & Associates Inc.

“Oil prices continued to struggle yesterday despite optimism across many major equity markets owing to eased concerns over the euro-zone debt crisis,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Rather than trading a correlation to the exogenous inputs, the crude oil complex was capped by flat price pressure coming from Brent, and the European complex was really under the pressure of InterContinental Exchange (ICE) gas oil.” The ICE gas oil crack is “losing steam,” with December 2011-December 2012 contract prices back into a contango structure, he said.

“The pressure on the gas oil crack will also put some additional pressure on the refining margins. The naphtha crack remains very weak, the gasoline crack is weak, and European refineries have been running at minimum rates. If the gas oil crack continues to weaken, then we will move deeper into the risk of more significant run cuts…on both sides of the Atlantic. If this was to happen, it should translate into pressure developing on the Brent time-spreads, with some erosion in the backwardation structure of Brent,” Jakob said.

Zhang said, “The front-end of the Brent structure strengthened, following further delays in delivery of physical North Sea cargoes, while West Texas Intermediate structure weakened as Cushing, Okla., inventories grew again. Gasoline and middle distillate cracks softened further yesterday, which weighed on refining margins in Europe, and in turn, is likely to keep crude prices under pressure.”

As the Brent-WTI spread narrowed, the premium of Light Louisiana Sweet crude over WTI has exceeded the Brent-WTI spread, “which suggests that it has again become more attractive to move crude cargoes over to the US instead of Europe,” said Zhang. “This is likely to relieve the pressure on the European crude market to some extent, and to provide some support to the weakening Brent structure.”

The Brent-WTI arbitrage spread remains volatile. “It does not relate any more to any physical arbitrage flows but relates instead to a financial arbitrage flow focused on the time-structure of the two crude futures contracts,” Jakob said. Based on the time-structure of the two contracts, he said, “The Brent premium to WTI is overvalued by about $6/bbl.”

Meanwhile, the latest economic data continues to show a softening economic recovery in developed countries that would reduce demand for crude.

In other news, Wood Mackenzie Ltd., Edinburgh, reported June 22 that recent events will accelerate “by 2-3 years” the end of the global oversupply of natural gas, leading possibly to higher spot prices than contract prices in both Asia and Europe.

“The global oversupply of gas, which was previously forecast to end in 2015, will now likely end in 2013 and possibly as early as 2012,” predicted Noel Tomnay, WoodMac’s head of global gas operations. “This oversupply is most manifest in Europe, which has become the market of last resort for LNG supply.”

According to WoodMac’s analysis, the end of gas oversupply in Europe will coincide with an increasingly tight Asian market. By that time Europe will be competing with Asia for LNG in a tight global market, “something not seen since 2008,” said the report.

Tomnay said, “Consequently, there is the potential for European spot prices to be equivalent to or even rise above contract prices within the next 2 years.”

US inventories
The Energy Information Administration said June 22 commercial inventories of benchmark US crudes dropped 1.7 million bbl to 363.8 million bbl in the week ended June 17. The Wall Street consensus was for a draw of 1.8 million bbl. Gasoline stocks were down 500,000 bbl to 214.6 million bbl in that same period, with analysts anticipating a 1 million bbl increase. Finished gasoline supplies increased while blending components decreased. Distillate fuel inventories gained 1.2 million bbl to 142 million bbl, said EIA officials, outstripping market expectations of a 600,000 bbl rise.

The American Petroleum Institute earlier reported US oil stocks declined 81,000 bbl to 362.95 million bbl in that week. It said gasoline inventories fell 1.5 million bbl to 211.9 million bbl, with distillate stocks down 541,000 bbl to 143.2 million bbl.

Imports of crude into the US increased by 511,000 b/d to 9.1 million b/d last week, EIA reported. In the 4 weeks ended June 17, crude imports averaged 9 million b/d, down 724,000 b/d from the comparable period a year ago. Gasoline imports last week averaged 867,000 b/d, while imports of distillate fuel imports averaged 122,000 b/d.

EIA said the input of crude into US refineries increased 409,000 b/d to 15.3 million b/d last week, with units operating at 89.2% of capacity. Gasoline production increased to 9.5 million b/d; distillate fuel production was little changed at 4.3 million b/d.

Energy prices
The expiring July contract for benchmark US light, sweet crudes traded at $92.48-94.74/bbl June 21 on the New York Mercantile Exchange before closing at $93.40/bbl, up just 14¢. The August contract advanced 54¢ to $94.17/bbl. On the US spot market, WTI at Cushing continued tracking the front-month futures contract price, up 14¢ to $93.40/bbl.

Heating oil for July delivery fell 4.2¢ to $2.89/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 2.89¢ to $2.88/gal.

The July natural gas contract gained 7.1¢ to $4.39/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 2.8¢ to $4.38/MMbtu.

In London, the August IPE contract for North Sea Brent crude lost 74¢ to $110.95/bbl. Gas oil continued to tumble, with the July contract dropping $11.25 to $921.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 41¢ to $107.82/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