MARKET WATCH: Oil prices strengthen; natural gas falls 3%

Sam Fletcher
OGJ Senior Writer

HOUSTON, June 17 -- Oil prices recovered slightly on June 16 from generally precipitous declines in the previous session, but natural gas dropped 3% in the New York market on forecasts of milder weather.

The Energy Information Administration reported the injection of 69 bcf of gas in to US underground storage in the week ended June 10, below the Wall Street consensus for a 71 bcf input. That brought working gas in storage to roughly 2.3 tcf. That’s 275 bcf less than in the comparable period last year and 76 bcf below the 5-year average (OGJ Online, June 16, 2011).

That addition still was “too high to outweigh mild weather forecasts,” said analysts in the Houston office of Raymond James & Associates Inc. The price of crude remained “relatively flat” as markets balanced the International Energy Agency’s modest increase in its forecast of world oil demand against a stronger dollar,” they said.

Elsewhere, the export of Libyan gas to Italy was cut off in February and likely will remain so “at least” through the rest of this year “and quite possibly further,” said Adam Sieminski, energy strategist, Deutsche Bank AG, Washington, DC. “Consequently, we expect that the Italian share of deferred Russian gas will be entirely consumed this year.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “So far this month we saw a series of negative and worse-than-expected data, especially out of the US. As far as commodities are concerned, we believe global macro economic data [are] revealing two trends—manufacturing is slowing and final product inventory is building. At the same time final demand is either slowing or weak. A build in product inventory and slowing final demand is not a positive signal.”

Oil demand, supply
In its most recent report, the IEA’s outlook for oil demand growth this year was unchanged at 1.3 million b/d. “But the call on crude from the Organization of Petroleum Exporting Countries increased by 400,000 b/d to 30.1 million b/d. Half of the increase…is coming from downward revision to non-OPEC supplies (Europe and Latin America) and half from a downward revision to processing gains,” said Olivier Jakob at Petromatrix, Zug, Switzerland.

“Normally a revision upwards of the call on OPEC would be a bullish input,” he said. “The problem, however, is that the IEA also found some additional OPEC crude oil and has made strong upward revisions to its baseline OPEC production.” The additional production apparently was in Venezuela, with the IEA revising its output up by 423,000 b/d in 2008; 513,000 b/d in 2009; 289,000 b/d in 2010; and 300,000 b/d in the first quarter of this year.

“In its comments the IEA points out that it is playing it on the safe side (i.e. that Venezuelan production could even be higher),” Jakob said.

He noted, “The call on OPEC for 2011 is now at 30.1 million b/d, with 30.7 million b/d in the third quarter and 30.1 million b/d in the fourth. If Saudi Arabia pumps at 10 million b/d, then we would have OPEC production at 30.5 million b/d and basically an unchanged overall stock situation for the second part of the year.”

For 2012, the IEA sees oil demand rising by 1.3 million b/d (same volumetric growth as in 2011); non-OPEC supplies increasing 900,000 b/d (compared with a 600,000 b/d increase in 2011); and OPEC’s NGL up 400,000 b/d (compared with a 600,000 b/d increase in 2011). “The IEA sees the call on OPEC crude oil in 2012 at the same level as in 2011 (30.1 million b/d),” Jakob said. “Hence the world could live on a volumetric basis without Libya in 2012 while on the other hand there will be increased flows from Iraq and the new offshore fields in Angola (220,000 b/d from the Pazflor field starting in October and 150,000 b/d from the PSVM [Plutao, Saturno, Venus, and Marte fields] in Block 31…in 2012).” He acknowledged, however, “The sweet-sour mix would remain an issue if Libyan crude oil was not to come back.”

As for spare capacity, the IEA estimates OPEC’s sustainable crude production capacity will be 37.9 million b/d in 2016, well above the call on OPEC,” said Jakob.

Sieminski at Deutsche Bank reported, “We show indicative Chinese refining margins down 56% year-to-date. Sharply lower runs may be ahead given what appears to be heavy maintenance for this month and next, which will factor into apparent demand calculations.”

He mentioned a new IEA study that concludes “unless the natural gas revolution in the US spreads globally, it will be virtually impossible to achieve carbon and greenhouse gas reduction goals.”

In other news, the Philadelphia Federal Reserve Bank “printed a negative 7.7 vs. expectations of plus 7, the lowest number since July 2009 and the largest 3-month fall on record,” Jakob reported.

Sieminski observed, “Break-even oil prices to balance budgets in key oil-exporting countries range from $82/bbl in Saudi Arabia to $96/bbl in Russia and $103/bbl in Nigeria. We believe this lends support to crude prices alongside rising finding and development costs.”

Energy prices
The July contract for benchmark US light, sweet crudes advanced 14¢ to $94.95/bbl June 16 on the New York Mercantile Exchange. The August contract increased 10¢ to $95.36/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., kept in step with the front-month futures contract, up 14¢ to $94.95/bbl.

Heating oil for July delivery inched up 1.9¢ to $3/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 2.59¢ to $2.95/gal.

The July natural gas contract continued to tumble, down 16.5¢ to $4.41/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 1.6¢ to $4.54/MMbtu.

In London, the new front-month August IPE contract for North Sea Brent crude regained $1.01 to $114.02/bbl after losing more than $6/bbl in the previous session. Gas oil for July greatly accelerated its decline, falling $29.75 to $948.75/tonne.

The average price for OPEC’s basket of 12 reference crudes dropped $3.07 to $109.55/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

API: US petroleum demand rose in June, second quarter

07/16/2015 Total US petroleum deliveries, a measure of demand, increased 4.2% from June 2014 to average 19.6 million b/d last month. In the second quarter, de...

ConocoPhillips plans further capex reduction for deepwater exploration

07/16/2015 ConocoPhillips reported plans to further reduce its capital expenditures for deepwater exploration, with the “most significant reductions” coming f...

DOE official: LNG exports could be limited by silt-clogged waterways, ports

07/16/2015 Silt, which is increasingly filling US waterways and ports, potentially could limit US LNG exports if it is not dredged soon, a top US Department o...

Fitch notes increase in energy-default rate

07/16/2015 Recent actions of two exploration and production companies have pushed the trailing 12-month energy default rate among issuers of high-yield bonds ...

ENOC trims Turkmen plan in Dragon takeover

07/16/2015 Emirates National Oil Co. Ltd. (ENOC), Dubai, will lower target oil production from the Cheleken area offshore Turkmenistan after acquiring full co...

KMI to buy Shell’s stake in Elba LNG project for $630 million

07/16/2015 Kinder Morgan Inc., Houston, has reached a deal with Royal Dutch Shell PLC to purchase 100% of Shell’s equity interest in Elba Liquefaction Co. LLC...

Genesis to buy Enterprise offshore pipelines

07/16/2015 Genesis Energy LP has agreed to buy the Gulf of Mexico pipelines and services business of Enterprise Products Partners LP for $1.5 billion cash.

Mexican round nets two successful bids

07/16/2015 Two of 14 shallow-water blocks received successful bids on July 15 in Mexico’s historic Round One offering of exploration and production rights (OG...

CAPP: Canada needs global LNG markets for gas production growth

07/16/2015 Canada needs to connect to global LNG markets to avoid a decade of decline in natural gas production, according to the Canadian Association of Petr...
White Papers

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

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
Available Webcasts

On Demand

OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST


Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

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