MARKET WATCH: Natural gas price jumps higher; oil rebounds in NY market

Energy prices rebounded June 14 in the New York market as traders ignored negative economic indicators, with the front-month natural gas contract escalating a whopping 14% on a bullish storage report.

The benchmark crude contract rose 1.6% in New York, but the price of North Sea Brent continued to slip lower in the London market.

In the US, unemployment benefits applications increased, creation of new jobs decreased, and consumer prices registered the biggest monthly decline since December 2008, signifying decreased demand for products (OGJ Online, June 14, 2012). The Federal Reserve reported June 15 US factory output dropped 0.4% in May, down from a 0.7% increase in April as auto manufacturers reduced production for the first time in 6 months.

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said “West Texas Intermediate continued to outperform Brent and oil products in general as the market is optimistic that the oil glut at Cushing, Okla., is to be drawn down following the Seaway Pipeline reversal. Meanwhile, oil products are holding their counterseasonal strength as global oil product stocks are at the lower end of their historical range. Although US refineries have gradually increased run rates in the past few weeks, refinery throughput in Europe and Asia has so far failed to boost product stocks.”

Yesterday’s rally in both oil prices and the equity market was based on expectations “that global central banks stand ready to provide a flood of liquidity if the election result [June 17 in Greece] spurs a financial panic,” said analysts in the Houston office of Raymond James & Associates Inc. “The market's gyrations this week have paralleled rumors about the Greek election and what its aftermath might bring.”

Zhang said, “Suffering from a $20/bbl drop and the ongoing Euro-zone debt crisis, the oil market has so far found it difficult to sustain any proper rallies. Risk-taking is hindered by significant event risks in the next few days. On the balance of risks, we do see more upside than downside risks in the oil price.”

The Energy Information Administration reported the injection of 67 bcf of natural gas into US underground storage in the week ended June 8. That was below Wall Street’s input consensus of 75 bcf. Working gas in storage now stands at 2.944 tcf, up 708 bcf from the comparable period a year ago and 666 bcf above the 5-year average (OGJ Online, June 14, 2012).

OPEC stands pat

As was generally expected, ministers of the Organization of Petroleum Exporting Countries meeting in Vienna voted to maintain their total production ceiling of 30 million b/d while pledging to “swiftly respond” to any threat to market stability (OGJ Online, June 14, 2012).

They reiterated the increase in price volatility is the result of geopolitical tension and speculation in commodities markets rather than fundamentals of supply and demand. They cited international concern over Euro-Zone sovereign debts and the consequent weakening economic outlook that has reduced demand for oil.

“Saudi Arabia cannot at the same time commit to a supply-cut to please OPEC and commit to replace Iranian barrels to please the G20 [group of 20 finance ministers and central bank governors from the biggest economies],” said Olivier Jakob at Petromatrix in Zug, Switzerland. King Abdullah bin Abdul-Aziz Al Saud of Saudi Arabia is to attend the G20 meeting June 18-19 in Mexico.

“The world crude oil price is currently made in the US. This is a very significant change from the past few years and a trend that will continue for the next 2 years,” Jakob said. “It is not the Chinese demand pull on oil that is driving the dynamics of crude oil flows but the US supply push. For the last 2 years, the US was lacking the transport infrastructure to move the new supplies out of the Midwest, but this is changing thanks to additional pipelines both fixed and on wheels (unit trains).”

He said, “The problem with the US supply push is that OPEC is ill-equipped to deal with it. Saudi Arabia is the global swing supplier but with no light, sweet crude capacity. Hence when a country like Libya is losing its export due to war, there is little that Saudi Arabia can do about it, and when a country like the US is diverting light, sweet crude imports due to increased domestic production, Saudi Arabia also cannot do very much about it. The demand currently is for replacement of Iranian barrels, for refinery production of bottom-ends (Japanese fuel demand), and not for refinery production of the top-end or for replacement of Nigerian barrels. The marginal demand is not for light, sweet crude oil; hence we continue to believe that it will be harder in the second half for Brent to resist the US supply push and therefore that the time-structure of Brent can return to visible pressure.”

Increased export of US petroleum products is reducing European imports of crude. As a result, Jakob said, “The differentials for light, sweet crude oil in the Mediterranean are getting crushed.” Although the price of Brent crude has until now been buoyed by increased exports to South Korea, he said, “The economics are starting to change. The differentials for Mediterranean grades have fallen so much that they will be increasingly competitive in Asia when compared with the artificial European-South Korea economics. If South Korean refiners get a 3% discount when buying Forties crude, Saharan Blend has now moved to a 3% discount to Forties. July Brent expired yesterday, losing most of its backwardation, and Brent August-September was trading flat.”

As more crude flows from Cushing to the Gulf Coast, he said, “The US will be lowering its requirement of West African barrels in the second half of the year; those barrels will have to go somewhere, and as a result the Brent-WTI [spread] is narrowing as Brent needs to narrow its premium to Dubai to push east the barrels that the US is forcing to be diverted to Europe.”

Energy prices

The July contract for benchmark US light, sweet crudes regained $1.29 to $83.91/bbl June 14 on the New York Mercantile Exchange. The August contract rebound $1.30 to $84.22/bbl. On the US spot market, WTI at Cushing was up $1.29 to $83.91/bbl.

Heating oil for July delivery increased 1.69¢ to $2.63/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 2.1¢ to $2.68/gal.

The July natural gas contract jumped 31¢ to $2.50/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dipped 0.1¢ to $2.19/MMbtu.

In London, the July IPE contract for North Sea Brent lost 10¢ to $97.03/bbl. Gas oil for July dropped $2.75 to $844.75/tonne.

The average price for OPEC’s basket of 12 benchmark crudes was down 34¢ to $95.22/bbl.

Contact Sam Fletcher at

Related Articles

EPA approves Magellan’s Corpus Christi splitter project

12/12/2014 The US Environmental Protection Agency has issued a final greenhouse gas prevention of significant deterioration construction permit to Magellan Pr...

Keyera to take majority interest in Alberta gas plant

12/12/2014 Keyera Corp., Calgary, will pay $65 million (Can.) to buy a 70.79% ownership interest in the Ricinus deep-cut gas plant in west-central Alberta.

PBF Energy, PBF Logistics make management changes

12/12/2014 Matthew Lucey, currently executive vice-president of PBF Energy Inc., will succeed Michael Gayda as the company’s president. Todd O’Malley, current...

TAEP: TPI still peaking, but ‘contraction unavoidable’ as oil prices fall

12/12/2014 The Texas Petro Index (TPI), a composite index based on a comprehensive group of upstream economic indicators released by the Texas Alliance of Ene...

MARKET WATCH: NYMEX crude oil price extends slump

12/12/2014 Crude oil prices extended their slump on the New York market with a Dec. 11 settlement of less than $60/bbl for January, and prices continued downw...

US needs more data before ending crude export ban, House panel told

12/11/2014 Much more environmental impact information is needed before the US can reasonably remove crude oil export limits, a witness told a House Energy and...

BOEM raises offshore oil spill liability limit to $134 million

12/11/2014 The US Bureau of Ocean Energy Management increased the liability limit for oil-spill related damages from offshore operations to $134 million from ...

Rosneft, Essar sign terms of oil supply agreement

12/11/2014 OAO Rosneft and Essar Energy PLC have signed key terms of an oil supply agreement in New Delhi. Rosneft said shipments to India may begin in 2015.

Barton introduces bill to remove US crude export limits


US Rep. Joe Barton (R-Tex.) introduced legislation that would remove US crude oil export limits that have been in place for nearly 40 years.

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.


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.


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.



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.


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