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

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