MARKET WATCH: Energy prices fell but likely will rebound on EU agreement

Energy prices tumbled Oct. 26, giving up gains from the previous session with crude dropping 3.3% in the New York market following a government report of a hefty increase in US crude inventory amid market uncertainties about the European Union summit that day.

However, analysts in the Houston office of Raymond James & Associates Inc. reported Oct. 27, “The big news this morning is that Europe's policymakers finally managed to surpass market expectations by actually accomplishing something.” They noted, “Of course, the devil is in the details, but the markets are clearly breathing a sigh of relief: after yesterday's 1% gain for Standard & Poor’s 500 Index, equity futures are up big.” Crude, they said, “is set to rebound today on the bullish news from Europe.”

After 10 hr of negotiations, EU leaders announced agreement on reducing Greece's sovereign debt, financial support of European banks facing additional losses on Greek bonds, and an increase to €1 trillion ($1.39 trillion) in the European Financial Stability Facility to prevent larger economies like Italy and Spain from floundering in the 2-year European economic crisis. Stock and oil prices rose in early markets Oct. 27, along with valuation of the euro.

“A €1 trillion bailout fund [is a] change we can believe in. Also, more bond purchases by the European Central Bank, deficit reduction by Italy, and a 50% haircut for Greece's bondholders,” said Raymond James analysts.

However, James Zhang at Standard New York Securities Inc., the Standard Bank Group, cautioned, “The underlying economic dynamics of the deal imply a lot more economic misery, centered around pressure on banks and pressure on countries to deliver more austerity. For now, the delivery of the deal by the EU should help support the risk-on feel of the market. However, the crisis will drag on further in the absence of the critical details on implementing the deal and the more fundamental issue regarding fiscal federalism. Consequently, a significant downside risk to the oil market remains, although we remain fairly positive in the near term due to the rather tight physical oil market.”

More good news for markets came from an Oct. 27 Commerce Department report the US gross domestic product expanded at a 2.5% annual rate in the third quarter, up from 1.3% in the second quarter and the strongest growth in a year. That compares with GNP growth of 0.9% in the first 6 months of 2011. However, the Associated Press reported, “It's far below what's needed to lower painfully high unemployment, which has been near 9% for the past 2 years.”

A larger decline yesterday in the price of West Texas Intermediate compared with North Sea Brent widened the price spread between the two crudes. “The middle-distillate crack rallied strongly, driven by a large draw in US distillate inventories. Light products also gained over crude oil, which helped with a recovery in refining margins. The term structures for both WTI and Brent weakened as well on the back of the crude oil inventory build,” said Zhang.

US inventories

The Energy Information Administration under the Energy Department reported commercial US crude inventories climbed 4.7 million bbl to 337.6 million bbl in the week ended Oct. 21. Gasoline stocks dropped 1.4 million bbl to 204.9 million bbl, and distillate fuel inventories fell 4.3 million bbl to 145.5 million bbl (OGJ Online, Oct. 26, 2011).

EIA today reported the injection of 92 bcf of natural gas into US underground storage last week, up from the Wall Street consensus of 87 bcf. That increased working gas in storage to more than 3.7 tcf. That’s 28 bcf less the amount in storage in the comparable week in 2010 but 158 bcf above the 5-year average.

Raymond James analysts noted crude inventories at Cushing, Okla., increased for the third consecutive week, by an additional 400,000 bbl. “Refinery utilization rose for the first time in 3 weeks, from 83.1% to 84.8%. The demand picture ticked up this week, with total petroleum demand increasing week-over-week (up 3%) and remains essentially flat year-over-year on a 4-week moving average basis,” they said.

Zhang said, “The build in crude inventories [was] mainly driven by a sharp increase in imports of 1.5 million b/d [from the previous week]. The implied demand for gasoline fell further to set a new seasonal low on a 4-week running average basis. In contrast, US distillate demand remained firmly above its previous 5-year average level.”

He reported, “Crude oil production in Libya has now risen to 400,000 b/d, with about 150,000 b/d from the Sarir field. However, so far, the recovery in Libya supply has yet to cool the physical market, [and] Brent structure stays in very steep backwardation. On the demand side, cracks are starting to appear in the otherwise rather [resilient] picture, as poor refining margins have persisted since September. The rally in refining margins following the fire at Shell’s refinery in Singapore has fizzled out over the past 2 weeks. As winter approaches, heating demand will have an increasing impact on the oil market, particularly with the low inventories in middle distillates.”

Meanwhile, the International Energy Agency (IEA) in Paris published its review of Greek energy policies in which it advised, “Reforming Greece's electricity and gas markets is a policy imperative that should add efficiency and dynamism to the Greek economy. This, in turn, should help generate self-sustained employment and prosperity for the country.”

The report notes Greece “has a large potential for wind and solar energy and is rightly determined to fulfill this potential. The renewable energy sector also provides opportunities for new industrial development, in particular if linked with research and development activities. To facilitate renewable energy projects, the government has recently increased feed-in tariffs, shortened and simplified the licensing procedures, and introduced stronger incentives for local acceptance.”

Such actions have been implemented in other countries that have since reduced tariffs and incentives because of the rising cost to energy consumers during the economic crisis. As a result, many wind-power companies around the world are in financial difficulties as governments reduce incentives.

Energy prices

The December contract for benchmark US sweet, light crudes fell $2.97 to $90.20/bbl Oct. 26 on the New York Mercantile Exchange. The January contract dropped $2.75 to $9.18/bbl with that market still in backwardation. On the US spot market, WTI at Cushing was down $2.80 to $90.20/bbl, back in sync with the front-month futures contract price.

Heating oil for November delivery declined 3.44¢ to $3.02/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month lost 4.82¢ to $2.65/gal.

The November natural gas contract fell 6.8¢ to $3.59/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 2.8¢ to $3.66/MMbtu.

In London, the December IPE contract for North Sea Brent dropped $2.01 to $108.91/bbl. Gas oil for November lost $3 to $954/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes decreased 64¢ to $108.83/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

EIA: US oil output fell 50,000 b/d in May

07/07/2015 Total US crude oil production dropped 50,000 b/d in May compared with April and is expected to continue falling through early 2016 before growth re...

BLM approves ROW for Elko gas pipeline expansion project

07/07/2015 The US Bureau of Land Management’s Tuscarora, Nev., field office signed a decision record approving a right-of-way for Paiute Pipeline Co.’s (PPC) ...

Obama urged by IPAA president to lift ban on US crude exports

07/07/2015 Commending the administration for its actions allowing some condensate to be exported as a petroleum product, Independent Petroleum Association of ...

AER shuts in 16 Murphy Oil sites in Peace River region for noncompliance

07/07/2015 Alberta Energy Regulator said it has shut in or partially shut in 16 sites operated by Murphy Oil Co. Ltd. in the Peace River region. The sites wer...

MARKET WATCH: NYMEX, Brent oil prices take dive on world oil oversupply concerns

07/07/2015 US light, sweet crude oil prices plummeted more than $4/bbl on the New York market July 6, marking a 5-month low, while Brent crude oil prices on t...

WAFWA: Aerial survey finds lesser prairie chicken population grew

07/06/2015 A recent range-wide aerial survey found the lesser prairie chicken population rose 25% from 2014 to 2015, the Western Association of Fish & Wil...

Buru awarded onshore Canning licenses

07/06/2015 Buru Energy Ltd., Perth, and Mitsubish Corp. have been granted two production licenses for Ungani oil field in the onshore Canning basin of Western...

Cenovus sells royalty business for $3.3 billion

07/06/2015 Cenovus Energy Inc., Calgary, inked an agreement to sell its wholly owned subsidiary Heritage Royalty LP to Ontario Teachers’ Pension Plan for gros...

CERI: Energy, operational efficiencies possible in Canadian oil, gas

07/06/2015 Measures can be taken by operators in the expanding resource-intensive Canadian oil and gas sector to improve both energy efficiency and operationa...
White Papers

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

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
Available Webcasts


The Resilient Oilfield in the Internet of Things World

When 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.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


OGJ's Midyear Forecast 2015

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


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