MARKET WATCH: Energy prices plunge as investors flee from risks

Markets dropped energy prices like hot rocks in a Sept. 22 “flight from risk” with crude plunging an awesome 6.3% in the New York market as weakening Chinese manufacturing data exacerbated the global economic concerns.

“Natural gas fared better, only giving up 0.7%. The Oil Service Index and SIG Oil Exploration & Production Index (EPX) were tagged with a 6.5% and 7.6% decline, respectively,” said analysts in the Houston office of Raymond James & Associates Inc.  The Dow Jones Industrial Average fell 3.5% and, along with crude, was down further in early trading Sept. 23.

Yesterday’s market chaos mimicked the Sept. 22, 2008, oil price collapse, prompting Olivier Jakob at Petromatrix in Zug, Switzerland, to warn, “The battle for survival at $80/bbl for West Texas Intermediate is back.” He said, “We are again knocking on the price level where the downside price pressure can accelerate if broken.”

Jakob said, “The $80/bbl WTI price level was well defended in August and will need to be again; the problem, however, is that the global picture has deteriorated further over the last 30 days.”

Meanwhile, Adam Sieminski, chief energy economist, Deutsche Bank AG, Washington, DC, sees “a clear disconnect between the financial markets and what we continue to hear in real time about the relative strength of end market demand across a wide cross-section of the US economy.” Deutsche Bank analysts said US auto sales continue to climb; one of the largest temporary staffing companies in the US is placing temporary workers at an accelerating rate; advertising spending remains strong; and many retailers and manufacturers “report no signs of a slowdown in sales.”

Sieminski said, “There has been some weakness in inventories held along supply chains. Our US economics team observes that despite frail economic growth in the first half of the year, corporate profit growth remains healthy, indicating that recession may not be imminent despite the gloom in the markets. Corporate profits have continued to grow year-over-year for the past eight quarters since turning positive in the third quarter of 2009. Furthermore, yesterday's Conference Board leading indicators index gained 0.3% in August, building on a positive trend and beating consensus expectations.”

He said, “This corroborates an analysis undertaken by our equity research team on credit conditions in the US that turned positive and suggest upside risks to growth. Although this goes against current market sentiment, credit impulse analysis would suggest upside risks to the US economy, downside risks to the Euro-zone, and what had been upside to credit growth in China has turned to become more balanced. The implication for commodities is that the US equity market trends may become supportive for energy and industrial metal prices as the fourth quarter unfolds.”

Possible bright spot

One positive result of the Sept. 22 market plunge is that it “might just add to more urgency for policymakers to take more decisive actions, particularly for the Euro-zone,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. Separate meetings of International Monetary Fund-World Bank officials on Sept. 23 and of the Group of 20 (G20) over the weekend “will be widely watched,” he said.

G20 is comprised of finance ministers and central bankers from the 20 largest economies, including the US and China. In a communique issued the evening of Sept. 22, the group said they “take all necessary actions to preserve the stability of banking systems and financial markets,” according to a Reuters news service report.

“There is a possibility that the Euro-zone will take some action in the next few days, such as to recapitalize banks in the region, which could arrest the market decline temporarily and put bids to risky assets again,” said Zhang.

Meanwhile, he said, “The market is likely to be subdued today ahead of the weekend and after the broad-based risk aversion move so far this week. Current uncertainties in the market [are] not set for buying on dips or taking on short-risk positions, even though there might be a chance that Euro-zone policymakers surprise the market on the upside in the short-term. A bullish view towards the short-term oil market can be justified to some extent by low inventories and supply disruption, but we believe that view should be expressed through term structures, rather than flat prices.”

Energy prices

The November contract for benchmark US light, sweet crudes floundered between $79.66-85/bbl Sept. 22 on the New York Mercantile Exchange before closing at $80.51/bbl, down $5.41 for the day. The December contract fell $5.43 to $80.75/bbl. On the US spot market, WTI at Cushing, Okla., was unusually quick to match the price of a new front-month futures contract; it also was down $5.41 to $80.51/bbl.

Heating oil for October delivery dropped 8.57¢ to $2.85/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month lost 10.65¢ to $2.56/gal.

The October natural gas contract declined 2.5¢ to $3.71/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., decreased 6.2¢ to $3.73/MMbtu.

In London, the November IPE contract for North Sea Brent took a serious fall of $4.87 to $105.49/bbl after shrugging off minimal declines in recent weeks while maintaining a large premium over WTI. Gas oil for October plunged $41.50 to $903.75/tonne.

The Goldman Sachs Group Inc. recently reiterated its prediction the front-month North Brent crude contract will climb to $130/bbl within the next 12 months.

However, Jakob said Sept. 23, “Even after the recent flat price correction, we continue to see Brent as one of the most overbought, overpriced assets. From the current economic base, having Brent rise to $130/bbl over the next 12 months will result in our opinion in something more serious than a double-dip [recession]; hence for the passive investor who is convinced about the $130/bbl-Brent-in-12-months scenario we think it would be better to be in cash than having the portfolio ‘protected’ with a 5% allocation to commodities.”

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped $3.88 to $105.11/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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

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


OGJ's Midyear Forecast 2015

When 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

When 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



On Demand

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