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 samf@ogjonline.com.

Related Articles

Total reduces budget by 10% to $23-24 billion

02/12/2015 Total SA plans to lower its organic investments to $23-24 billion in 2015 from $26.4 billion in 2014 by reducing spending in brownfield development...

MARKET WATCH: NYMEX crude prices drop back below $50/bbl

02/12/2015 The New York Mercantile Exchange March crude oil contract dropped $1.18 on Feb. 11, closing at $48.84/bbl. The April contract dropped $1.15 to $50....

US House vote sends Keystone XL approval bill to Obama’s desk

02/12/2015 The US House of Representatives voted by 270 to 152 to pass S. 1, which would deem the proposed Keystone XL crude oil pipeline approved more than 6...

Groups object to White River National Forest draft leasing decision

02/12/2015 The Western Energy Alliance, West Slope Colorado Oil & Gas Association, and Public Lands Advocacy jointly filed a formal objection to the US Fo...

Five fatalities, four missing now confirmed following FPSO explosion offshore Brazil

02/12/2015 BW Offshore now reports five fatalities—all employees of BW Offshore—and four crew members missing following the Feb. 11 explosion of the Cidade de...

TransCanada challenges EPA’s comments on Keystone XL SEIS

02/11/2015 TransCanada Corp. responded to the Feb. 2 comment letter from the US Environmental Protection Agency on the US Department of State’s final suppleme...

PNR cuts capital spending nearly in half

02/11/2015 Pioneer Natural Resources Co. (PNR), Dallas, plans to spend $1.85 billion in 2015 following a fourth quarter in which the company reported a net in...

InterOil wins arbitration over rights dispute with Oil Search

02/11/2015 The International Chamber of Commerce arbitration panel in London has found in favor of InterOil Corp. in its battle with Oil Search Ltd. over pree...

PACE survey finds 69% support for crude exports to trading partners

02/11/2015 More than two thirds of registered voters responding in a nationwide telephone survey commissioned by Producers for American Crude Exports (PACE) s...
White Papers

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

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...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

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


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


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