MARKET WATCH: European discord over Greek debt undermines markets

The price of crude oil topped $88/bbl in intraday trading Oct. 17 in New York but closed at a small loss for the day as commodities and equities retreated after French and German officials clashed over a second rescue package for Greece.

Germany wants banks to accept cuts of 50-60% on their Greek bond holdings to reduce Greece’s overall debt load that otherwise could reach 180% of the country’s economic output next year. German officials say a solution must be found to allow Greece to repay its debts over the long run.

But France wants to stick with a preliminary agreement with private investors in July that would reduce Greek bond holdings 21% primarily through reduced interest rate and deferred payments that would provide short-term relief. French banks are the biggest holders of Greek government bonds, but France’s position is supported by the European Union’s executive commission.

Agreement between the two biggest economies in the Euro-zone is necessary to unite all 17 members of the currency union behind some sort of solution at a crisis summit scheduled Oct. 23.

The result was a “disappointing, frustrating, normal day” in the energy market, “largely spurred by the broader market, which teased us by opening up with a smile and subsequently getting its teeth kicked out,” said analysts in the Houston office of Raymond James & Associates Inc. After rallying almost 10% through the previous nine trading sessions, the Dow Jones Industrial Averaged opened “slightly in the black” Oct. 17 “but subsequently took a 250-point (or 2%) dive following commentary by Germany that the fix to Europe's debt crisis may not be as speedy as anticipated,” they said.

“Crude didn't completely shadow the broader markets for once and managed to escape the selloff, ending the day relatively flattish while the Oil Service Index and [SIG Oil Exploration & Production Index] EPX retreated 3.8% and 1.6%, respectively (so much for a boost to E&P stocks on ‘Merger Monday’),” Raymond James analysts said. Broader market futures, crude, and natural gas were all lower in early trading Oct. 18.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “The Germans told the market to stop dreaming about a miracle solution, and global markets did just that…. As for the European miracle solution to be delivered over the weekend, we would not be surprised if they come up with some bright idea but to be applied (maybe) in a year or two.”

Jakob reported, “There were wild swings in relative values yesterday. The Brent premium to West Texas Intermediate corrected lower quite strongly, but the backwardation in ICE gas oil also softened from the peaks seen at the end of last week and the reformulated blend stock for oxygenate blending (RBOB) backwardation fell off. The latest demand numbers for France (September) show oil demand growth very similar to that of Italy. French gasoline demand was 5.9% lower than a year ago, but Diesel was up 0.2%.”

He said, “Technically, Brent performed poorly yesterday. Contrarily to the previous post-expiry day, it did not manage to perform a backwardation convergence (December moving up to the expiring November value), and Brent was stopped right on the upper band of the weekly descending channel, which is therefore confirmed further. The 200-day moving average did not provide much support for Brent, and we are therefore about to see a negative crossover of the 100-day to 200-day moving average. The slope of the 5-day moving average is also starting to flatten; hence Brent is at risk of seeing a series of negative crossovers on the moving averages.”

Jakob said, “The gas oil cracks were stronger yesterday and overall the distillate complex also was helped by a widening of the heating oil to gasoline premium. On ICE gas oil we have to watch the support on the 200-day moving average at $933.75/tonnes.”

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “It appears as though the weakness [in energy prices] will persist on news of a slowing Chinese economy and the expectations of growing US oil inventories.” He said, “[Market] participants have once again switched to risk-off mode, with the consequent weakness in financial markets spilling over into commodities.”

China’s performance

The Chinese third-quarter gross domestic product was reported up 9.1% from a year ago but slightly below expectations. “Many countries would be happy to own that GDP growth figure, but this is China and it is therefore the weakest number since 2009,” said Jakob.

He reported, “The September Chinese refinery runs also show that China is growing but not surging ahead; refinery runs were only 130,000 b/d higher than in September 2010 (a marginal increase of 1.5%).” Chinese oil production was down 220,000 b/d compared with September 2010. However, Jakob said, “The growth in refining demand was so small that despite the drop in production the growth in crude oil requirements is a low 350,000 b/d.”

Jakob noted Chinese refinery runs during the third quarter were 380,000 b/d higher than a year ago, while officials at the International Energy Agency in Paris “plugged in 600,000 b/d for their estimate of Chinese oil demand growth” in that period compared with the third quarter of 2010. “The IEA will have to make some further downward adjustment to its demand numbers. The oil-specific data coming out of China is much worse than the GDP numbers coming out slightly below expectations,” he said.

Weakness in oil markets also is “encouraged by the expectation that the Department of Energy report [to be published Oct. 19] will reveal that US crude stockpiles have climbed for a second week. According to consensus, inventories probably rose 2 million bbl during the week ended Oct. 14,” Ground reported.

In other news, Moody's Investors Service warned that France’s AAA rating could be placed on a negative outlook within the next 3 months. “Investors remain wary that this weekend’s EU summit will result in any decisive steps to solve the region’s crisis,” said Ground.

Energy prices

The November contract for benchmark US sweet, light crudes climbed as high as $88.18 in the Oct. 17 trading session but closed with a 42¢ loss at $86.38/bbl on the New York Mercantile Exchange. The December contract retreated 38¢ to $86.62/bbl. On the US spot market, WTI at Cushing, Okla., matched the front-month futures contract, down 42¢ to $86.38/bbl.

Heating oil for November delivery declined 4.22¢ to $3.01/gal on NYMEX. RBOB for the same month dropped 8.18¢ to $2.74/gal.

The November contract for natural gas decreased 1.5¢ to $3.69/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., jumped 21¢ to $3.70/MMbtu.

In London, the new front-month December IPE contract for North Sea Brent fell $2.07 to $110.16/bbl. Gas oil for November declined $4.25 to $947.75/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained $1.12 to $110.13/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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.

register:WEBCAST


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.

register:WEBCAST


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.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

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.

register:WEBCAST


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