MARKET WATCH: Energy prices bounce back from 1-day dip

Energy commodity prices bounced back Aug. 15 from a one-session dip at the end of last week, with the front-month crude futures contract temporarily topping $88/bbl in intraday trading in the New York market.

The equity market solidified gains “as the three major indices erased the remaining losses” from the earlier downgrade of US credit by Standard & Poor’s Financial Services LLC, said analysts in the Houston office of Raymond James & Associates Inc. “Driven primarily by a flurry of merger and acquisition activity, the S&P 500 index posted its third straight positive day, finishing up 2.2%. Energy equities led the pack as crude oil rose 2.9% on a weaker dollar and positive economic signals. Natural gas, on the other hand, finished the day marginally lower due to milder-than-expected temperatures,” they said.

“Oil and equities continued to move in tandem with the 10-day correlation, at 95%, as both markets are shaped by the same macroeconomic and sovereign debt concerns,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group.

Raymond James analysts said, “Buoyed by the improved crude price environment, the EPX [SIG Oil Exploration & Production Index] posted a solid 3.8% gain and the Oil Services Index jumped 3.6%, impelled by the news of Transocean Ltd.'s planned purchase of Norwegian drilling firm Aker Drilling ASA.” During early trading Aug. 16, however, news of weaker-than-expected growth in the Eurozone had oil and gas in the red.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “Our opinion remains that to have a sustainable rally in crude oil some good economic signs are needed; oil prices cannot forever be supported just because the dollar is weak due to a worsening economic picture in the US.”

Jakob observed, “We are past the point where some weakness in the dollar can create additional world oil demand. First of all, the Chinese yuan is tied to the dollar, hence a rise of oil prices on a weaker dollar impacts negatively the two main engines of oil demand (US and China). Secondly, the world economy is global enough that economic weakness in the US will not be isolated there.”

In terms of oil fundamentals, Jakob said, “We expect to see a crude oil build on the US Gulf Coast in the weekly statistics [to be released Aug. 17], given that we estimate that there should have been a transfer of at least 6.5 million bbl from the Strategic Petroleum Reserve to commercial stocks. The Brent September futures contract expires today, and the expiring spread has not been as tight as in recent expiries. The contango in West Texas Intermediate is, however, narrow, and the spread difference between Brent and WTI is in our opinion not large enough to have traders buy Brent rather than WTI on the basis of roll optimization.”

He said, “Brent (or US Light Louisiana Sweet) at $120/bbl had a negative impact on demand and consumer sentiment in the first half of the year despite having then some global euphoria about strong economic growth and employment to supposedly come in the second half of the year. We are in the second half of the year with much lower consumer and investor confidence, and we think that it is fair to assume that a return to $120/bbl Brent (or LLS) would have in the second half of the year a much greater negative impact on consumption than in the first half of the year. Not to mention the interventionist pressure that will develop on policy makers. In the current economic climate we see, therefore, little sustainable upside in buying Brent above $110/bbl.”

The volume of WTI trades was moderate yesterday, with no inflows into the WTI exchange traded funds, and trading on options totally stalled. Jakob said, “The bottom-picking activity seems to be slowing down, and continuation in the price rebound needs to come from more convinced buyers now that the ‘oil seems cheap’ buyers have done their shopping.” He said, “The momentum is therefore starting to be positive in WTI, but it now needs to break the resistance of $88.30/bbl to avoid the creation of a dead-cat bounce.”

Meanwhile, Zhang reported, “A recession in the US and Eurozone in the next 6 months seems increasingly likely. German gross domestic product data undershot consensus (0.1% actual vs. 0.5%). French data last week posted no growth for the second quarter. US second quarter GDP expanded by 1.3%, after a mere 0.4% increase in the first quarter (revised down from 1.9%). However, we do not expect the global economy to contract as much as it did in the 2008 recession.”

Given the recent weak global economic data, he said, the probability of negative growth during the next 6 months in the US and the Euro-zone has increased and so has the downside risk to oil prices.

Energy prices

The September contract for benchmark US sweet, light crudes jumped by $2.50 to $87.88/bbl Aug. 15 on the New York Mercantile Exchange. The October contract escalated $2.45 to $88.14/bbl. On the US spot market, WTI at Cushing, Okla. remained in step with the front-month futures price, up $2.50 to $87.88/bbl.

Heating oil for September delivery increased 4.04¢ to $2.94/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month gained 5.23¢ to $2.87/gal.

The September contract for natural gas lost 3.6¢ to $4.02/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 9.5¢ to $4.04/MMbtu.

In London, the September IPE contract for North Sea Brent was up $1.88 to $109.91/bbl. Gas oil for September gained $5.75 to $922.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased 97¢ to $104.78/bbl on Aug. 15. So far this year, OPEC’s basket price has averaged $107.30/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