MARKET WATCH: Oil prices boosted by faith EU will solve its financial crisis

Front-month crude closed up 1.5% on an optimistic outlook for Europe in the New York market Oct. 21, having pulled back in the final hours of the session from an earlier surge. Natural gas traded flat.

North Sea Brent was harder hit than West Texas Intermediate, giving back all of its gains to close marginally lower. Market sentiment appeared to favor a further increase in crude prices in early trading Oct. 24, “although again it appears as if WTI could fare better than Brent,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. Optimistic anticipation of favorable action from the European Union summit scheduled Oct. 26 “and encouraging data out of Asia (Japanese exports and Hong Kong and Shanghai Banking Corp.’s preliminary Chinese Purchasing Managers Index [PMI] for manufacturing) are keeping energy markets buoyant,” he said.

In Houston, analysts with Raymond James & Associates Inc. noted Tunisia over the weekend became the first country to successfully hold free elections since the Arab Spring began, while US President Barack Obama announced his intention to withdraw troops from Iraq by yearend. “Now if only the European Union could straighten out its fractious state, maybe we could get back to business as usual,” they said.

In Zug, Switzerland, Olivier Jakob at Petromatrix was less optimistic. He reported, “Data from ICI [Investment Co. Institute] continue to show outflows from US equity mutual funds. The trend in outflows started in early May 2010 as riots in Athens shocked the financial markets. This is also a reminder as to how long this rolling kick-the-can-down-the-road Greek crisis has been with us; and this week will surely not be the last week of crisis.”

He said, “According to the Troika [European Commission, European Central Bank (ECB), and International Monetary Fund], private investors need to take a haircut of 50% for the Greek debt-to-gross domestic product ratio to fall back to 120% by 2020, or a haircut of 60% for it to reach 110% by 2020. This is of course a much worse picture than 3 months ago, and it is fair to work with a risk assumption that the picture could be even worse a few months from now. Europe continues to work in cacophony, and we will have to wait for [the midweek summit] to have a final outcome. Then again, the deadline has been pushed back so many times that we cannot even be sure of that, and [German Chancellor Angela] Merkel made sure to note that ‘the summit…will not be the last step to overcome the crisis.’ The weekend [EU] meetings were so serious that the Belgium Finance minister left them early…in order not to miss the start of the premiere showing of the new Tintin film [based on series of classic comic books created by the Belgian artist Georges Remi]. One has to have the right priorities.”

Jakob said, “This week again it will be difficult to trade in the global markets anything but the European headlines and rumors, and the week that follows we will have the Group of 20 meeting in France.”

Highlighting the EU’s weekend and scheduled midweek meetings “is the continuing rift between France and Germany on how to boost funds to the €440 billion European Financial Stability Facility (EFSF) now widely regarded as essential to fight off the growing risks to large European banks and government bond markets—with the Italian bond market becoming an ever-increasing concern,” said analysts at KBC Energy Economics, a division of KBC Advanced Technologies PLC.

Furthermore, they said, “The slow pace of the return of Libyan oil to the market is another reason that supply has been tight, and this has resulted in a steep backwardation on the North Sea grade, where prompt oil for physical delivery sells at a premium to the futures market. Because prompt oil is more expensive, this tends to make buying it and storing it more expensive than buying it on the futures market for delivery at a later date.”

They reported, “Although crude oil remains tight, renewed weakness is now underway on other commodities, and it looks increasingly like oil prices are defying gravity. Despite the tight physical market, barely a fortnight ago ICE Brent had been close to dropping below $100/bbl as the economic situation threatened to spiral out of control The market is now waiting in anticipation that the Euro-zone summits will have a positive outcome and a plan for fiscal injection into both European banks and the EFSF will be agreed upon in the week ahead. Differences on how the EFSF will be funded have widened over the last few days, with France now concerned the current plan could affect its coveted AAA credit rating, while German concerns over the ECB being exposed unlimitedly to the EFSF bring back strong historical memories. Confidence in Europe’s largest economy is not high.”

Meanwhile, Standard & Poor’s 500 Index last week jumped 1.2%, “marking a 9.4% gain since the beginning of October and on track for index's best month in 11 years,” Raymond James analysts said.

They further noted, “Oil drilling activity in North America is set to remain very robust, barring the unlikely scenario of the futures curve falling and staying below the $70/bbl level. In other words, if you're looking for reasons why activity might slow down appreciably, the price of oil is not it. Access to capital is also not a problem—most major producers are flush with cash, while smaller players can tap the equity markets (royalty trusts, etc.) and sign strategic partnerships. Government policy (e.g., the ongoing ‘permitorium’ in the Gulf of Mexico) is a more substantive risk.”

Ironically the oil and gas industry “particularly in the US is running out of the most important resource of all: people,” they said. “We have written several times before (most recently in 2008) about the ‘graying of the oil patch’—the stark reality that, as the current petroleum professionals approach retirement, their ranks are not being fully replenished with new hires. At a time when the US is suffering from persistently high unemployment, demand for professionals in the oil and gas industry couldn't be better—and their supply is struggling to keep pace.”

Energy prices

The new front-month December contract for benchmark US light, sweet crudes regained $1.33—little more than half its losses over the previous two trading sessions—to $87.40/bbl Oct. 21 on the New York Mercantile Exchange. The January contract increased $1.26 to $87.47/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.10 to match the December futures price of $87.40/bbl.

Heating oil for November delivery dropped 12.6¢ to $3.02/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month inched up 0.91¢ but closed essentially unchanged at a rounded $2.68/gal.

The November natural gas contract on NYMEX dipped 0.1¢ to close at $3.63/MMbtu, also unchanged. On the US spot market, gas at Henry Hub, La., fell 11.1¢ to $3.52/MMbtu.

In London, the December IPE contract for North Sea Brent lost 20¢ to $109.56/bbl. Gas oil for November rebound $19.50 to $955.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes gained $1.12 to $108.31/bbl.

Contact Sam Fletcher at

Related Articles

EPA proposes voluntary methane reduction program for gas industry

07/24/2015 The US Environmental Protection Agency proposed a voluntary methane reduction program for the natural gas industry that would allow companies to ma...

Petrobras workers stage 24-hr strike

07/24/2015 Workers at beleaguered Petroleo Brasileiro SA (Petrobras) staged a 24-hr strike across Brazil to protest plans by the state-owned company to liquid...

MARKET WATCH: Oil futures hover below $49/bbl

07/24/2015 Light, sweet crude oil futures prices settled under $49/bbl July 23 on the New York market, which means US prices have slid more than 20% since the...

EQT reports high IP from Utica dry gas well

07/24/2015 EQT Corp., Pittsburgh, said a deep, dry gas Utica well averaged 72.9 MMcfd with an average flowing casing pressure of 8,641 psi during a 24-hr deli...

Separate Murkowski bill addresses crude exports, OCS revenue sharing

07/24/2015 US Senate Energy and Natural Resources Committee Chair Lisa Murkowski (R-Alas.) introduced legislation that would end the ban on US crude oil expor...

OGUK updates guidelines for well abandonments


Oil & Gas UK has released updated guidelines for abandonment of wells, including cost estimates.

MARKET WATCH: Oil futures plunge below $50/bbl


Light, sweet crude oil futures prices plunged lower to settle below $50/bbl on the New York market on July 22.

Cornyn calls for more US energy exports in wake of Iran deal

07/23/2015 US Senate Majority Whip John Cornyn (R-Tex.) said it would be geopolitically, economically, and strategically absurd for the US to maintain outmode...

Post-sanctions Iran initially won’t shake markets up, executive says

07/22/2015 Iran’s resumption of oil and gas exports, once sanctions are lifted under the recently negotiated nuclear limits agreement, probably won’t flood gl...
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

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.


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


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