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

Market watchers' adjustments offer hints of recovery

01/26/2015 Because markets look ahead, changes in standard forecasts offer potentially important signals during storms such as the one now pummeling the oil a...

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...
White Papers

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

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by
Available Webcasts

On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

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