MARKET WATCH: Crude oil prices fall in mixed market

Crude oil prices continued to fall, down 1.6% in New York on a mixed market Oct. 13 as traders ignored a “broadly bullish” government report on commercial US inventories to cash in on the recent rally.

“Production cracks and prompt refining margins fell further in Europe and the US, which has left margins for even the most sophisticated refineries barely positive. The term structure of Brent climbed further, with the time spread between December 2011 and December 2012 Brent contracts exceeding $8/bbl this morning,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Furthermore, physical differentials for many crude grades have strengthened again, including the high sulfur grades.”

Natural gas regained more than 1% as traders scrambled to cover short positions on a “bearish” report on US underground gas storage, said analysts in the Houston office of Raymond James & Associates Inc.

The latest inventory report by the Energy Information Administration indicated US refinery utilization declined 3.5%, to the lowest level since May—“clearly signaling the start of the US autumn maintenance season” said Zhang. “The drop in refinery throughput certainly hit the production of both gasoline and distillates, which have caused a sizeable fall in oil product inventories, even though US domestic demand remains soft.”

He observed, “Crude inventories at Cushing, Okla., grew by 500,000 bbl for the first time since July. The build in crude inventories was driven by an increase in imports as well as a fall in refinery runs.”

Zhang said, “The oil market is in a tug of war between very tight physical fundamentals and significant uncertainties in the financial market. It appears that the supply and demand fundamentals are winning. Very poor refining margins could be a sign of further weakening of demand for oil products, which could filter through the supply chain to refiners. Furthermore, price volatility is likely to stay elevated due to the tightness in the physical market and a still uncertain financial market.”

Adam Sieminski, chief energy economist, Deutsche Bank AG, Washington, DC, said, “Gasoline prices are currently proving surprisingly resilient beyond the traditional high-demand US driving season period. In our view, this recent strength reflects a tight fundamental balance for gasoline driven in part by…import and demand requirements and unexpected refinery outages.”

As for natural gas, Sieminski said, “Abnormally cold December, January, and February [are] perhaps the only hope left for rescuing natural gas prices from their current doldrums.” In Europe’s gas market, he said, “Although it is unlikely that Norway will reach initial forecasts of 2011 gas production, we believe this means that there will be significant spare capacity available over the fourth quarter, thereby limiting price upside.”

‘Demand may soften’

Fitch Ratings analysts in Chicago said global demand for oil may soften within weeks because of growing concerns about the faltering global economy. The recent rebound in crude prices was “apparently driven by rising hopes for a plan to address the European debt crisis,” they said. “Signs of a slowdown in energy demand growth have been apparent since mid-summer and have been confirmed in data releases from various sources.”

Fitch analysts said, “While weak demand in the developed economies has been factored into traders’ expectations for months…the more significant development this fall is a slowing growth rate in emerging markets’ energy demand. Chinese demand in particular appears vulnerable to increasing weakness as imported energy needs decline relative to previous forecasts. Trade figures released by the Chinese government indicated that September oil import volumes declined by 12% year-over-year, as export demand growth slowed compared with August.”

A dramatic reduction of crude demand in emerging markets is “the biggest risk factor for world oil prices moving into 2012,” they said. “Weakening demand in the developed economies for exports from China and other emerging markets could erode imported oil demand further over the next few months.” In one hypothetical scenario developed by Fitch, a drop in the growth of China’s gross domestic product to less than 5% could drop crude prices by 20%.

Meanwhile, Standard & Poor’s downgraded Spain’s sovereign rating by one notch to AA– and left the outlook on negative, following a similar downgrade from Fitch last week.

Libyan outlook

Other members of the Organization of Petroleum Exporting Countries increased production to offset the loss of high-grade Libyan oil supplies in world markets earlier this year. However, Fitch analysts said, “As Libyan production comes back on line and European demand growth slows, the potential exists for global demand to decline relative to supply, potentially pushing down crude prices and narrowing the spread between the Brent and WTI benchmarks.”

Waha Oil Co., owned by Libya’s National Oil Corp. in a joint venture with ConocoPhillips, Marathon Oil, and Hess Corp., may resume production after the pending dismissal of its chairman. Raymond James analysts said, “Workers had been lobbying for the removal of Waha's chairman, who was supposedly friendly with the defunct Moammar Gadhafi regime. The new oil minister has pledged to fulfill the strikers' request, but no formal announcement has been made yet.” Hess, Conoco, and Marathon have said they'll return to Libya when they deem it safe to do so. The analysts noted, “The civil war isn't fully over yet, and remaining US sanctions must also be lifted first.”

In other news, Olivier Jakob at Petromatrix in Zug, Switzerland, noted, “The Bahrain opposition parties made a first joint declaration since the start-of-the-year demonstrations, criticizing the ruling family, the police state, etc. Iran had always given some support (at least moral) to those mainly Shia protesters, and after the alleged plot against the Saudi ambassador it is a given that the protesters in Bahrain will not get a lot of support from the West. The momentum against Iran is increasing significantly after the discovery of the Washington, D.C., plot, and there will be a push for greater sanctions (preferably on the finance side) against Iran.”

Jakob said, “For Saudi Arabia, the challenge for the next 18 months will be to address the comeback of Libya and the expected increase of Iraq supplies (new VLCC loading points) while demand could slow down. It is assumed that Saudi Arabia will gradually reduce production as Libya and Iraq increase theirs, but Saudi Arabia also claims that it will continue to supply what the customers ask for. Therefore if the customers start to buy less Iranian crude oil because of increased sanctions around the logistics of the oil supply (a direct embargo on oil exports would have no chance), then Saudi Arabia can continue to supply more (also meeting its budget requirements through higher volume rather than higher prices) while Iran loses more market share.”

Energy prices

The November contract for benchmark US light, sweet crudes dropped $1.34 to $84.23/bbl Oct. 13 on the New York Mercantile Exchange. The December contract lost $1.33 to $84.45/bbl. On the US spot market, WTI at Cushing was down $1.34 to $84.23/bbl.

Heating oil for November delivery continued climbing, up 3.67¢ to $2.97/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month inched up 0.88¢ to $2.76/gal.

The November contract for natural gas regained 4.2¢ to $3.53/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 9.2¢ to $3.46/MMbtu.

In London, the November IPE contract for North Sea Brent dipped 25¢ to $111.11/bbl. Gas oil for November increased $2.25 to $920.75/tonne.

The average price for OPEC’s basket of 12 benchmark crudes retreated 64¢ to $107.04/bbl.

Contact Sam Fletcher at

Related Articles

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 ...

MARKET WATCH: Oil prices fall on uncertain timing for US stimulus cuts

08/22/2013 Crude oil futures fell in trading Aug. 21 on the New York market after the release of minutes from the Federal Reserve’s policy meeting failed to p...

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.


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.


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.



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.


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