MARKET WATCH: Oil prices make strong rally

Responding to improved economic data, oil prices rebound in a strong rally Mar. 16 with North Sea Brent topping $125/bbl.

“The time spread in Brent also recovered from a sharp sell-off the day before but gave back some of the gains this morning as demand is still tamed by weak refinery demand,” said James Zhang at Standard New York Securities Inc., the Standard Bank Group. Petroleum products were stronger as were their time spreads following news that an increasing number of refineries is going into planned maintenance or otherwise reducing runs due to poor margins.

However, analysts in the Houston office of Raymond James & Associates Inc. reported, “Concerns over rising commodity prices and the possibility that the Federal Reserve Bank may take the ‘punch bowl’ away has brought some added skeptics to the market's bullish run.” They noted the volatility index (VIX) is at its lowest level in 5 years, “lending itself to intensifying debate over whether the bullish run will continue or, as some skeptics' believe, that a correction is on the horizon.”

Zhang said, “China is set to increase domestic retail prices for gasoline and diesel again, as international benchmark oil prices continue to climb. This could stimulate some incremental demand from domestic refiners, but it will add to inflation pressure and curb oil demand growth in the medium term. Meanwhile, Asia’s fuel oil cracks appeared to have bottomed as refineries go into maintenance season and relatively more expensive heavy crude also reduces fuel oil supply.”

Geopolitical risk continues to threaten a possible price spike in crude. “It is worth noting that implied volatility declined further last week, which continues to pose a good producer hedging opportunity,” said Zhang.

In a White House meeting last week, President Barack Obama raised the possibility of releasing strategic petroleum reserves in a meeting with British Prime Minister David Cameron (OGJ Online, Mar. 16, 2012).

“The consideration of a strategic reserve release is another bow in the armor the US is searching for to maintain pressure on Iran,” said analysts at KBC Energy Economics, a division of KBC Advanced Technologies PLC. “The US and the European Union have imposed punishing sanctions against Iran’s banking and energy sectors to pressure it to abandon its uranium enrichment program.”

Iranian sanctions

In an unprecedented step, the Society for Worldwide Interbank Financial Telecommunication—the global group that handles banking transactions—announced last week it will discontinue communications services to Iranian financial institutions subject to European sanctions, effectively preventing the flow of money in and out of Iran. “This latest announcement coincides with news that many UAE financial institutions have stopped handling Iranian Rials over the past few weeks, placing further difficulties on Iran to trade and to acquire hard currency,” KBC analysts reported.

China and India have said they will continue to take Iranian crude oil, although US administration officials last week indicated this could lead to sanctions against India if Iranian crude purchases are not reduced. “A decision to levy penalties under a new US law restricting payments for Iranian oil could be enforced as early as June 28,” said KBC analysts. “Indian officials are reported to have indicated planned reductions are expected when new contracts are renewed in April; however government ministers have been vocal in their support of continued purchase of Iranian crude oil to support the country’s growing energy requirements.”

They said, “Oil markets are at the point of a delicate balancing act” between political requirements for sanctions on Iran and the need to balance global oil supplies until the traditional second quarter reduced demand period. KBC’s demand forecast is for a 1.6 million b/d decline in global demand in the second quarter, easing pressure on supply prior to demand increases in the third and fourth quarters of 2012.

“Although much commentary has been made on crude prices being supported by a forecast in US economic demand growth, our ongoing market analysis of US oil demand shows a significant fall [compared with] the first quarter of 2011,” KBC analysts said. They are forecasting a 4.57% decline (872,000 b/d) in total US first quarter demand compared with the same period in 2011. Leading the way in absolute volume terms is a forecast decline in US gasoline demand of 356,000 b/d (4.1% decline), closely followed by diesel with a decline of 287,000 b/d (7.3%) in first quarter 2012 compared with a year ago, they said.

Production from the Organization of Petroleum Exporting Countries continues at high levels, apparently “on track to come in at a level of 31.2 million b/d during March, 1.2 million b/d above the ‘voluntary production roof,’” KBC reported. “As usual, when supply is high from OPEC, the lead has been taken by Saudi Arabia, which is producing about 9.85 million b/d. Kuwait and the UAE have supported additional production, with the trio drawing some Iranian ire over their promises to make up any Iranian oil supply shortfalls in the coming months.” However, Middle East rhetoric has mellowed since Mar. 1 parliamentary elections in Iran and its offer to renew negotiations with the West over its nuclear program.

Meanwhile, KBC analysts said, “Rumors of Iranian production already falling and floating storage building still remain largely unsubstantiated and might be caused by the changed patterns of Iran’s use of its own tankers, as fewer international shippers remain ready to serve Iranian routes.” KBC expects OPEC’s spare capacity will rise this year from the first quarter level of 2.62 million b/d to 3.14 million b/d in the fourth quarter.

Energy prices

The April contract for benchmark US light, sweet crudes increased $1.95 to $107.06/bbl Mar. 16 on the New York Mercantile Exchange. The May contract gained $1.93 to $107.58/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $1.95 to $107.06/bbl.

Heating oil for April delivery rose 5.94¢ to $3.28/gal on NYMEX. Reformulated stock for oxygenate blending for the same month climbed 6.84¢ to $3.36/gal.

The April natural gas contract was up 4.7¢ to $2.33/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., lost 1.5¢ to $2.06/MMbtu.

In London, the May IPE contract for North Sea Brent jumped $3.21 to $125.81/bbl. Gas oil for April increased $11.75 to $1.035.75/tonne.

The average price for OPEC’s basket of 12 benchmark crudes dipped 11¢ to $122.92/bbl. So far this year, OPEC’s basket price has averaged $116.52/bbl.

Contact Sam Fletcher at

Related Articles

Inhofe, Lankford say new BIA rules threaten Osage oil operations

07/10/2015 New US Bureau of Indian Affairs regulations that increase production expenses on tribal lands could put the Osage Nation out of business, Oklahoma’...

House panel’s crude export ban hearing weighs urgency against caution

07/10/2015 A US House Energy and Commerce subcommittee hearing on legislation to repeal the ban on exporting US-produced crude oil quickly broke along party l...

Chevron Phillips Chemical makes executive appointments


Chevron Phillips Chemical Co. LLC has made several executive appointments, all effective Aug. 1.

Twelve workers killed in Nigeria pipeline explosion

07/10/2015 Eni SPA reported that an explosion occurred July 9 at the repair site for the Tebidaba-Clough Creek oil pipeline in Nigeria’s onshore Niger Delta.

Gov. Tomblin forms West Virginia oil, gas safety commission

07/10/2015 West Virginia Gov. Earl Ray Tomblin (D) established the oil and gas safety commission he announced in his 2015 State of the State address. The grou...

MARKET WATCH: NYMEX, Brent crude oil prices rebound more than $1/bbl

07/10/2015 Prices for US light, sweet crude oil and Brent crude each rebounded by more than $1/bbl on their respective markets July 9, and analysts attributed...

Transco seeks FERC approval for New York Bay Expansion project

07/09/2015 Transcontinental Gas Pipe Line Co. LLC (Transco), a wholly owned subsidiary of Williams Partners LP, has filed an application with the US Federal E...

House Oversight panel subpoenas Kerry for Keystone XL documents

07/09/2015 The US House Oversight and Government Reform Committee issued a subpoena to US Sec. of State John F. Kerry for reports, recommendations, letters, a...

MARKET WATCH: NYMEX crude oil prices drop for fifth consecutive trading session

07/09/2015 US light, sweet crude oil prices settled slightly lower on the New York market July 8 for the fifth consecutive trading session, and analysts attri...
White Papers

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

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
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