MARKET WATCH: Crude oil prices rise; European crisis continues

Oil prices escalated Nov. 7 with crude closing above $95/bbl in the New York market as natural gas prices again declined and economic and political issues deteriorated in Europe.

“Oil rallied as Brent broke through significant technical resistances in the 200-day moving average and the upper band of a well-established channel,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “Oil products failed to catch up to the strong rally in crude, resulting in weaker product cracks across the barrel and softer refining margins. Meanwhile, the term structures for both West Texas Intermediate and Brent followed flat prices and were firmer, on a persistently tight physical market.”

In Greece, negotiations between Prime Minister George Papandreou and opposition leader Antonis Samaras to share power in that country continued for a second day Nov. 8, amid indications that selection of a new prime minister is imminent. Papandreou and Samaras agreed over the weekend to forge an interim government to get the next phase of a €130 billion Euro-zone rescue fund through parliament.

In Italy, Premier Silvio Berlusconi won a vital vote in parliament but apparently lost his previous majority in the Chamber of Deputies. So far, he has refused pressure from key supporters and the opposition to resign in the face of the financial crisis in that country.

Zhang said the market generally had hoped Berlusconi would be voted out of power in favor of “a technocrat government” that would be “more likely to take control of the fiscal situation in Italy.”

Meanwhile, Zhang said, “Geopolitical risk has put the Middle East back on the radar as the International Atomic Energy Agency (IAEA) is due to release its report on Iran’s nuclear program. As the stake is so high, we do not expect any material change to the overall geopolitical situation in that region in the short term. Nevertheless, this increases the tail-risk of the market.”

German Chancellor Angela Merkel and French President Nicolas Sarkozy were unable to control the Greek crisis “and we should not kid ourselves…they will be able to control the Italian crisis,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “The bond spreads continue to rise higher, Italy is now entering the phase of terminality that Greece and Portugal went into, and it is quite clear that the firewalls have failed. If the fire cannot be put out quickly on the Italian bond yields, then we have to prepare for the worse (also keeping in mind that it is probably not only [bankrupt brokerage firm] MF Global that made the wrong bets on European sovereign bonds). Yesterday, the European Financial Stability Facility issued a 10-year bond at 177 basis points over German bonds and that compares to 51 basis points for a similar deal in June.”

Jakob said, “As the Euro-zone goes deeper into austerity, we will have to keep a very negative view on economic and oil demand for Europe. The preliminary estimate of French petroleum sales (survey ex independent storage and refineries) for October has gasoline sales down 2%, diesel up 2% and heating oil (FOD) down 10% vs. last year.”

He reported, “Crude oil futures have been able to hold pretty well despite the pressure coming from the rising Italian yields, but the strength is in line with our expectations of a rising geopolitical premium as we head into the countdown to the IAEA report on Iran.”

A renewed geopolitical premium will help end the previous correlation between oil prices and Standard & Poor’s 500 Index or the euro-dollar valuations. However, Jakob said, “The Iranian premium will not be good for oil demand or the economy in general. The cracks on light ends will be under more pressure, but with Iran the market will be pricing war rather than what is needed to have steady economic growth. Under the current Iranian theme, we do not want to be at the same time long global equities and long oil futures. It will also be interesting to see what happens to consumer confidence if increased tensions do materialize between Iran and the West after the IAEA report.”

Zhang said, “In the short term, the oil price is likely to rally as the technical break-out in Brent will inevitably attract fresh buying and prompt short-covering. Furthermore, the very tight fundamentals keep the oil market supported. That said, headwind from a soft economy and an ongoing Euro-zone crisis is likely to cap oil prices below $120/bbl. Across the barrel, we favor middle-distillates despite the very strong rally during the past month, but we take a bearish view towards light and heavy products.”

Energy prices

The December and January contracts for benchmark US sweet, light crude on the New York Mercantile Exchange and WTI at Cushing, Okla., on the US spot market were all up $1.26/bbl Nov. 7 to $95.52/bbl, $95.45/bbl, and $95.52/bbl, respectively. The December contract on NYMEX traded as high as $96.11/bbl in that session.

Heating oil for December delivery increased 4.9¢ to $3.12/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month rose 6.48¢ to $2.73/gal.

The December natural gas contract dropped 8.7¢ to $3.70/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., continued its decline, down 5.3¢ to $3.36/MMbtu.

In London, the December IPE contract for North Sea Brent traded at $111.26-115.23/bbl in the Nov. 7 session before closing at $114.56/bbl, up $2.59 for the day. Gas oil for November continued its rally, up $15 to $984.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased to $111.08/bbl on Nov. 7 from $109.96/bbl at the end of last week. So far this year, OPEC’s basket price has averaged $107.24/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

EPA delays proposal to regulate methane emissions until 2015

12/19/2014 The US Environmental Protection Agency is delaying plans to issue proposals to regulate methane emissions from oil and gas operations until 2015, O...

BLM starts process to consider new Nevada lease nominations

12/19/2014 The US Bureau of Land Management’s Battle Mountain, Nev., field office is seeking public comment on 197 parcels of public land, totaling 415,921 ac...

California Bay Area advances plan for enhanced refinery regulations

12/19/2014 California’s Bay Area Air Quality Management District (BAAQMD), the public agency responsible for regulating stationary sources of air pollution in...

IEA finds US energy policy improved in latest in-depth review

12/19/2014 US energy policies have come into sharper focus in the last six years, the International Energy Agency said in its latest periodic review. It speci...

Comstock to suspend 2015 oil drilling in Eagle Ford, TMS

12/19/2014 Due to low crude oil prices, Comstock Resources Inc., Frisco, Tex., plans to suspend its 2015 oil-directed drilling activity on properties in the E...

Mexico uses PSCs in first Round One step

12/19/2014 Mexico is offering production-sharing contracts to companies incorporated in the country for exploration of 14 shallow-water areas in Round One bid...

BASF, Gazprom cancel asset swap

12/19/2014

BASF and OAO Gazprom have agreed not to complete an asset swap that was scheduled for yearend.

AWE pulls out of Otway permit

12/19/2014 AWE Ltd., Sydbey, has decided to pull out of Perth-based junior WHL Energy Ltd.’s offshore Otway Basin permit Vic-P67 after a series of time extens...

Jewell names Maryland energy administrator BOEM’s new director

12/18/2014 US Interior Sec. Sally Jewell appointed Abigail Ross Hopper, who currently directs the Maryland Energy Administration, as the new director of the U...

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