MARKET WATCH: Oil prices drop sharply as economy falters

Oil prices had the trajectory of a thrown rock June 21 with front-month contracts falling below $79/bbl for West Texas Intermediate and under $90/bbl for North Sea Brent.

“Yesterday was one crummy day for the markets, with energy really taking it on the chin,” said analysts in the Houston office of Raymond James & Associates Inc. The Standard & Poor's 500 Index dropped 2.2%, but that “paled in comparison to WTI’s 4% plunge, taking oil prices to their lowest level since October,” they said. “While natural gas gained 2.6% [in the New York futures market] after a bullish storage report, it wasn't nearly enough to save energy stocks, with the [Oil Service Index] and the [SIG Oil Exploration & Production Index] both dropping more than 5%.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, said, “The oil market suffered another heavy blow on downbeat US economic data and rumors of bank downgrades by Moody ’s [Investors Service Inc.], which were later confirmed. Crude underperformed oil products again as the sell-off has been led by the apparent long liquidation in crude. The term structures across both the Brent and the WTI curves also fell really hard, which has pushed the first 12 months of the Brent curve and the whole WTI curve into contango. Both structures have recovered somewhat this morning. In the options market, implied volatility spiked again as the flat price fell sharply.”

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “The S&P 500 suffered a strong set-back, and Europe looks worse and worse by the day. The only solutions now being proposed are to break the rules: The European Central Bank is looking at relaxing its rules on collateral that can be used for its loans, the European Union continues to push for a ban on rating agencies, etc.”

Zhang reported, “The US published a set of disappointing economic data, including weekly job numbers and the Philadelphia Federal Reserve survey, which weighed on market sentiment. However, it’s the rumor of imminent rating downgrades on a number of major global banks by Moody’s that has sent risky assets tumbling, with the Dow Jones Industrial Average dropping by more than 250 points. The US dollar strengthened by around 1%, which has caused dollar-denominated commodities to tumble.”

US gas inventory

The US Energy Information Administration reported the injection of 62 bcf of natural gas into US underground storage in the week ended June 15, below Wall Street’s consensus expectation for an input of 64 bcf. That raised working gas in storage above 3 tcf—680 bcf higher than last year at this time and 641 bcf above the 5-year average (OGJ Online, June 21, 2012).

Raymond James analysts said, “Coal-to-gas switching continues to trend higher running 3-5 bcfd tighter for most of the year and switching an average of 5.7 bcfd through the first 3 months of the year. The real question is whether or not these levels of switching are sustainable. We would suggest the answer is no, primarily due to our belief that coal has become the more marginal supplier. As we enter into more normal summer weather, coal will be used to meet incremental demand. However, we would expect April and May switching levels to remain elevated due to shoulder season and continued mild weather.”

Meanwhile, the continued decrease in demand for hydroelectic power, “given this year's low snow pack, should help take additional supply out of the gas market,” they said. With current gas prices around “$2.60/Mcf and [our] belief that coal-to-gas switching slows in the $2.50/Mcf range and could actually reverse in the $3/Mcf range, we suspect switching will slow significantly in the near future,” said Raymond James analysts. “All in all, we expect coal-to-gas switching to average an impressive 4.3-4.5 bcfd for 2012, well north of last year's 1.8 bcfd.”

Energy prices

The new front-month August contract for benchmark US light, sweet crudes dropped $3.25 to $78.20/bbl June 21 on the New York Mercantile Exchange. The September contract fell $3.28 to $78.56/bbl. On the US spot market, WTI at Cushing, Okla., was down $3.60 to $78.20/bbl.

Heating oil for July delivery retreated 6.21¢ to $2.53/gal on NYMEX. Reformulated stock for oxygenate blending for the same month declined 4.01¢ to $2.55/gal.

The July natural gas contract climbed 6.5¢ to $2.58/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., lost 6.7¢ to $2.53/MMbtu.

In London, the August IPE contract for North Sea Brent was down $3.46 to $89.23/bbl. Gas oil for July fell $19.25 to $822/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped $3.60 to $89.48/bbl.

Contact Sam Fletcher at


Related Articles

API: US petroleum demand rose in June, second quarter

07/16/2015 Total US petroleum deliveries, a measure of demand, increased 4.2% from June 2014 to average 19.6 million b/d last month. In the second quarter, de...

ConocoPhillips plans further capex reduction for deepwater exploration

07/16/2015 ConocoPhillips reported plans to further reduce its capital expenditures for deepwater exploration, with the “most significant reductions” coming f...

DOE official: LNG exports could be limited by silt-clogged waterways, ports

07/16/2015 Silt, which is increasingly filling US waterways and ports, potentially could limit US LNG exports if it is not dredged soon, a top US Department o...

Fitch notes increase in energy-default rate

07/16/2015 Recent actions of two exploration and production companies have pushed the trailing 12-month energy default rate among issuers of high-yield bonds ...

ENOC trims Turkmen plan in Dragon takeover

07/16/2015 Emirates National Oil Co. Ltd. (ENOC), Dubai, will lower target oil production from the Cheleken area offshore Turkmenistan after acquiring full co...

KMI to buy Shell’s stake in Elba LNG project for $630 million

07/16/2015 Kinder Morgan Inc., Houston, has reached a deal with Royal Dutch Shell PLC to purchase 100% of Shell’s equity interest in Elba Liquefaction Co. LLC...

Genesis to buy Enterprise offshore pipelines

07/16/2015 Genesis Energy LP has agreed to buy the Gulf of Mexico pipelines and services business of Enterprise Products Partners LP for $1.5 billion cash.

Mexican round nets two successful bids

07/16/2015 Two of 14 shallow-water blocks received successful bids on July 15 in Mexico’s historic Round One offering of exploration and production rights (OG...

CAPP: Canada needs global LNG markets for gas production growth

07/16/2015 Canada needs to connect to global LNG markets to avoid a decade of decline in natural gas production, according to the Canadian Association of Petr...
White Papers

Definitive Guide to Cybersecurity for the Oil & Gas Industry

In the Oil and Gas industry, there is no single adversary and no single threat to the information tech...

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
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