MARKET WATCH: Iranian threats push crude above $101/bbl in New York market

The front-month crude futures contract rose 1.7% to close above $101/bbl Dec. 27 in the New York market as Iran’s Vice-President Mohamed Reza Rahimi threatened to close the Strait of Hormuz if western nations sanctioned the country's oil exports in an effort to stop its nuclear program.

The head of Iran’s navy reiterated that threat Dec. 28. Adm. Habibollah Sayyari told state-run Press TV, “Closing the Strait of Hormuz is very easy for Iranian naval forces.” However, the US Navy responded that such a move “will not be tolerated.”

In Houston, analysts at Raymond James & Associates Inc. reported, “The 12-month West Texas Intermediate strip jumped 1.5% to close above the $100/bbl mark. Natural gas finished the day flattish.” However, energy prices were down in early trading Dec. 28 when Saudi Arabia said it will offset any loss of oil from a threatened Iranian blockade. The problem is the Strait of Hormuz is the chokepoint for crude from Saudi Arabia and Iraq shipped through the Persian Gulf.

Meanwhile, in a show of strength the US Navy is involved in a 10-day war game in 1,250 miles of international waters off the Strait of Hormuz, northern parts of the Indian Ocean, and into the Gulf of Aden near the entrance to the Red Sea.

The European Union, whose members buy 25% of Iranian crude exports (450,000 b/d), said earlier this month that it is considering such an embargo and a decision by the council of ministers is expected by the end of January. However, the stronger economies in northern Europe who import little or no Iranian crude are the strongest advocates for an embargo, while smaller countries in southern and eastern Europe that are more dependent on Iranian crude are less than eager.

“Threats from Iran are hardly new, and while some of them are purely saber-rattling, the regime has had its share of actual outrages, e.g., the recent attack on the British embassy,” said Raymond James analysts. “A blockade of Hormuz, which carries 15 million b/d of oil supply, would obviously be a huge escalation, but just the threat alone is enough to raise the geopolitical risk premium in the oil market.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “Shutting down the strait is the last bullet that Iran has, and therefore we have to express some doubt that they would do this and at the same time lose their support from China and Russia. One thing though is that Iran could try and challenge legally the passage in their territorial half of the strait. It would still leave open the Omani half of the strait and oil could still flow out of the [gulf] on an alternate basis through the Omani side. That would make the voyage a bit longer but would not stop the oil flows.”

Refining loss looms

In other news, Zug-based Petroplus Holdings AG, Europe's largest independent refiner, “has probably never been this close to becoming ‘Petrominus,’” Jakob said. The company’s $1 billion revolving credit facility has been frozen by its lenders, “and that will now make it extremely hard for the company to continue operating. The shares of Petroplus lost 46% yesterday,” he said.

Petroplus anticipated 460,000-510,000 b/d throughput at its five European refineries this quarter. “The ‘Petroplus Market Indicator’ for its refining margin is based on 40% Urals, 35% Forties, 12% CPC, and 13% Bonny Light,” Jakob reported.

He noted, “The US is losing 700,000 b/d of refining capacity on the East Coast (Sunoco and Conoco) and if Petroplus turns to ‘Petrominus,’ then altogether it is close to 1.4 million b/d of refining capacity that could be lost in the northern Atlantic Basin in the first half of 2012 compared [with] the first half of 2011. The lost crude oil demand that would come with Petroplus shutting down would make it easier in the balances for Europe to force a ban on Iranian crude oil; the only problem, however, is that a ban on Iranian crude oil could put the existence of the Greek refineries in jeopardy. Therefore the loss of refining capacity in the northern Atlantic Basin is not necessarily over.”

Jakob said, “Crude oil is simply too expensive compared to end-user demand and the current European credit crunch is not helping(amounts deposited by banks at the European Central Bank deposit facility rather than in the inter-bank market reached a new record). As a result, the amount of refining capacity about to be closed in the Atlantic Basin is just tremendous. The Iranian headlines might be supporting crude oil, but if Petroplus shuts down then we will want to move the long exposure to products rather than crude oil given that a total of 1.4 million b/d of lost refining capacity is not a small number for the supply of products, while on the crude oil side we will have to combine a 1.4 million b/d loss of crude oil refinery demand with a 1.2 million b/d gain of crude supply from Libya, when comparing the first half of 2012 with the first half of 2011.”

2012 capex outlook

Analysts at Pritchard Capital Partners LLC said, “With domestic natural gas trading at current low levels and mild weather around the country, we think 2012 capital expenditures focused in dry gas basins face an additional risk. Even though winter is just beginning and January and February can bring Arctic weather, at this point we are favoring companies with international and crude oil exposure rather than the ones more concentrated on domestic dry gas.”

They said, “Crude oil still trades at levels attractive to operators and remains exposed to political risks around the globe, thus tending to bolster cash flows and spending. This is combined with the fact that short-term fluctuations usually do not affect spending by the majors, national oil companies, and international oil companies—these companies are usually investing for the long term. We heard just last week that India's Oil and Natural Gas Corp. expects to spend $5.9 bill on capex next year, an increase of 11%. We expect this trend to continue and to hear similar announcements from other IOCs, NOCs, and the majors.”

Energy prices

The February contract for benchmark US light, sweet crudes rose $1.66 to $101.34/bbl Dec. 27 on the New York Mercantile Exchange. The March contract gained $1.63 to $101.46/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.66 to $101.34/bbl.

Heating oil for January delivery increased 1.78¢ to $2.91/gal on NYMEX. Reformulated stock for oxygenate blending for the same month inched up 0.16¢ but closed essentially unchanged at a rounded $2.69/gal.

The January natural gas contract dipped 0.2¢ but also closed virtually unchanged at a rounded $3.11/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., escalated 12.1¢ to $3.09/MMbtu.

In London, the February IPE contract for North Sea Brent increased $1.31 to $109.27 bbl. Gas oil for January rebound by $10 to $924.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 12¢ to $107.77/bbl. So far this year, OPEC’s basket price has averaged $107.47/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

Obama’s proposed fiscal 2016 budget recycles oil tax increases

02/02/2015 US President Barack Obama has proposed his federal budget for fiscal 2016 that he said was designed to help a beleaguered middle class take advanta...

MOL absorbs Eni’s Romanian retail assets

02/02/2015

MOL Group, Budapest, has completed the acquisition of Eni Romania, including 42 service stations to be rebranded under the MOL name.

CNOOC subsidiary inks deal for grassroots refinery

02/02/2015 Hebei Zhongjie Petrochemical Group Co. Ltd., a subsidiary of China National Offshore Oil Corp. (CNOOC), has entered into a $700 million agreement w...

Pessimism mounts over UK offshore industry

02/02/2015

Pessimism about the UK offshore oil and gas industry is gaining momentum.

EnLink agrees to purchase Coronado Midstream for $600 million

02/02/2015 EnLink Midstream has agreed to acquire Coronado Midstream Holdings LLC, which owns natural gas gathering and processing facilities in the Permian b...

Antero trimming, delaying Marcellus drilling

02/02/2015 Antero Resources Corp., Denver, has announced a $1.8 billion budget for 2015, which is down 41% from 2014. The independent said it plans to defer c...

Woodside gets NEB approval for British Columbia LNG exports

02/02/2015 Woodside Energy Holdings Pty. Ltd. has received approval from Canada’s National Energy Board on its application for a 25-year natural gas export li...

Syncrude sees additional $260-400 million in possible budget cuts

02/02/2015 The estimate for capital expenditures has also been reduced to $451 million net to COS, which includes $104 million of remaining expenditures on ma...

Kerry expects to receive other agencies’ Keystone XL reports soon

02/02/2015 US Sec. of State John F. Kerry said he expects to receive other federal agencies and departments’ reports soon on the proposed Keystone XL crude oi...

White Papers

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

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by

Available Webcasts



Global LNG: Adjusting to New Realties

When Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST



On Demand

US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

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