MARKET WATCH: Debt and demand worries undercut energy prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, July 28 -- Energy prices generally fell July 27, wiping out small gains from the previous session, with crude oil dropping 2.2% in the New York market on continued concern over the debt limit stalemate and a bearish government report on US oil inventories.

“The markets were slammed yesterday,” said analysts in the Houston office of Raymond James & Associates Inc. The Standard & Poor’s 500 index fell more than 2%. Natural gas dropped 1.2%, pressured by milder weather. Both oil and gas prices were relatively flat in early trading July 28.

Leon Westgate at Standard New York Securities Inc., the Standard Bank Group, reported, “Crude oil has continued to track the dollar in recent days, with both West Texas Intermediate and Brent coming under pressure yesterday and again this morning.”

Olivier Jakob at Petromatrix in Zug, Switzerland, ticked off a list of economic problems including lack of agreement on US debt and release of the Federal Reserve System’s latest Current Economic Conditions Report (the “Beige Book”) of anecdotal information on economic conditions. The latest report shows “the soft patch is not coming to an end, while US durable goods orders for June came out much worse than expected and does not bode well for the second quarter gross domestic product numbers” to be published July 29, he said. “Investors are starting to take some risk off the table as the deadline on the US debt extension comes closer; the S&P 500 lost a significant 2.02% yesterday and this while the dollar index was regaining the losses of the previous day.”

Jakob warned, “Don’t count on Europe to offset any disappointment in the US economic recovery. Cyprus is now next on the list of countries that are likely to require a bail-out. Not a big economy but another of the European dominoes that will need to come on the books of the French-German union. Meanwhile, the [United Nations’] International Monetary Fund is warning France about its budget deficit, and French unemployment jumped in June much more than expected, increasing by 1.3% from May…which already had seen an increase. Equities and commodities are close to record highs, pricing the mother-of-all-economic-recoveries but the macroeconomic data points are still very fragile and the investment appetite poor.”

Tropical storm
Meanwhile, Tropical Storm Don is “quickly rising in the ranks” of potential market concerns, said Raymond James analysts. Don, the fourth named storm of the current Atlantic hurricane season, formed July 27 off Mexico’s Yucatan Peninsula. Offshore operators are already evacuating nonessential crew from rigs and platforms in the US sector of the gulf, but production is not shut in yet. “Gulf Coast refiners are likely keeping their eyes on the storm as well. We note that natural gas prices have yet to blink, while crude is taking the opposite approach (dollar-driven),” Raymond James reported.

“As of now the calculated path [of the storm] should be more of a concern for refining assets than for oil-producing platforms,” Jakob said. earlier warned Gulf Coast motorists, “If you want to be safe, fill up now,” alluding to a possible spike in retail gasoline prices rather than any need yet for evacuation. “As evidenced in the past, temporary spikes in [gasoline] prices do coincide with tropical systems moving through the Gulf of Mexico,” weather analysts said.

Don is expected to make landfall over Texas late July 29. “It will probably be a tropical storm, but it is very possible the system could develop into a minimal hurricane,” said Tropical Expert Dan Kottlowski. Its early path would take it south of Corpus Christi, and only a few offshore facilities would be affected. However, Kottlowski expressed concern the storm could track farther north along the Texas coast where there is a higher concentration of refineries and offshore platforms.

US inventories
The Energy Information Administration earlier said commercial US crude inventories increased 2.3 million bbl to 354 million bbl in the week ended July 22, the reverse of the Wall Street consensus for a 2 million bbl draw. Gasoline stocks rose 1 million bbl to 213.5 million bbl, outstripping analysts’ expectations of a 400,000 bbl build. Both finished gasoline and blending components increased during the week. Distillate fuel inventories jumped by 3.4 million bbl to 151.8 million bbl in that period, more than double market projections of a 1.6 million bbl gain (OGJ Online, July 27, 2011).

EIA reported July 28 the injection of 43 bcf of natural gas into US underground storage last week, above analysts’ consensus for 36 bcf input. That brought working gas in storage to 2.71 tcf, down 201 bcf from the comparable period last year and 65 bcf below the 5-year average.

Raymond James analysts attributed the build of crude inventories to the release of 2.3 million bbl from the US Strategic Petroleum Reserve earlier in the week. “Demand also posted bearish numbers as total petroleum demand fell 2.3% sequentially and is down 2.2% year-over-year on a 4-week moving average basis,” they said. A drop in the New York market’s 3-2-1 crack spread coincided with a decline in refinery utilization to 88.3% last week from its high of 90.3% the previous week. “While macro factors (debt ceiling and stronger dollar) continued to be in the driver's seat for crude prices yesterday, the large build in inventories certainly did not help as crude ended the day down,” the analysts said.

The EIA report showed “a total stock build of 11.4 million bbl, which is not a small amount (1.6 million b/d), of which only 2.3 million bbl was coming from SPR,” Jakob observed. “So far in July and excluding the 2.3 million bbl from SPR, the US has built 19.5 million bbl or 900,000 b/d. This has to be put in the context of the International Energy Agency (IEA) in Paris that was calling for a world stock draw of 1.3 million b/d in the third quarter. If the US is building at a rate of 900,000 b/d, then it would mean that the rest of the world is drawing at a rate of 2.2 million b/d or that the IEA is wrong in its estimate of supply and demand in the third quarter. We think it is the later rather than the former.”

Jakob also pointed out, “Total implied oil demand on the 4-week average is down 3.24% vs. last year, and as importantly it is trending down. The total US implied oil demand on the 4-week average is at par to the levels of 2009…. For the week, total US oil demand is down 1.2 million b/d vs. a year ago and 300,000 b/d lower than in 2009. For the same week, US oil demand is at the lowest level since 1998.”

He reported, “Implied demand for clean petroleum products (CPP) is down on the 4-week average by 3% vs. last year. It is outside of the norm to see a declining trend at this stage of the season.” He said total stocks of crude and CPP were up 6.7 million bbl during the week and at par to 2009 levels “before accounting for the SPR barrels.”

There were 4.5 million bbl of SPR crude scheduled for release July 17-23. The cut-off date for the latest EIA report was July 22 and showed only 2.2 million bbl of transfers. “With 2.3 million bbl still to be transferred on July 23 and 4.2 million bbl scheduled July 24-31, there should be a large layer of SPR crude oil showing up in the next report,” Jakob surmised.

He said low refinery utilization rates on the US Gulf were not helping make room for SPR barrels to be released in the next few weeks, but refinery runs remain at high levels in the Midwest to capitalize on the WTI margins, and this is helping to reduce some of the crude oil stocks in the Midwest except in Cushing, Okla.

Meanwhile, Jakob said, “The price of regular gasoline at the pump is back to flirting with $4/gal on the East Coast, hence the drop in sales vs. last year while unemployment is still historically very high should not be a great surprise. The gasoline stocks are in the range of previous years. Gasoline stocks are lower than a year ago, but given that implied demand for gasoline is 3.3% lower than a year ago, the days-of-cover are at par to the levels of last year and at the highest levels since 2002.”

Jakob reported, “Overall, in the US, implied demand for petroleum products is turning to the worse, which cannot be a great surprise since both prices at the pump and unemployment are not coming down. Refineries are still running but due to the slow demand the product production is going to stocks. The slowdown of demand comes at a time when US refiners are receiving large layers of SPR crude oil barrels, and this should translate into a continued stock build (be it in crude oil or in products) while a lot of hype had been created about ‘huge stock draws to come in the third quarter.’ Oil prices do not really need to move higher than current levels to cap demand. Despite the builds in the US Gulf and the SPR barrels that still need to be delivered, the Brent premium to WTI is widening further and the Light Louisiana Sweet premium to WTI increasing to what we think are record high levels.”

Energy prices
The September contract for benchmark US sweet, light crudes fell $2.19 to $97.40/bbl July 27 on the New York Mercantile Exchange. The October contract dropped $2.17 to $97.84/bbl. On the US spot market, WTI at Cushing was down $2.19 to $97.40/bbl.

Heating oil for August delivery declined 3.08¢ to $3.08/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month decreased 1.13¢ to $3.14/gal.

The August contract for natural gas was unchanged at $4.37/MMbtu on NYMEX, but the September contract was down 1.3¢ to $4.32/MMbtu. On the US spot market, gas at Henry Hub, La., increased 2.2¢ to $4.45/MMbtu.

In London, the September IPE contract for North Sea Brent dropped 85¢ to $117.43/bbl. Gas oil for August lost $4 to 974.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was down 24¢ to $113.41/bbl.

Contact Sam Fletcher at

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...
White Papers

Definitive Guide to Cybersecurity for the Oil & Gas Industry

In the Oil and Gas industry, there is no single adversary and no single threat to the information tech...

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
Available Webcasts

Better Data, Better Analytics, Better Decisions

When Tue, Oct 27, 2015

The Oil & Gas industry has large amounts of data stored in multiple systems which are purpose built for certain tasks. However, good decisions require insights based upon the data in all of these systems. These systems in turn do not talk to each other. So the process of analyzing data, gaining insights, and making decisions is a slow one and often a flawed one. Good decisions require accurate analytics and accurate analytics require superior/sustainable data quality and governance. This webinar focuses on:

  • The importance of data quality and governance
  • How technological advances are making data quality and governance sustainable in order to get the accurate analytics to make solid decisions.

Please join us for this webcast sponsored by Seven Lakes Technologies and Noah Consulting.


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.


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