Oil and gas prices continued climbing May 20 amid optimism for a US economic recovery and the prospect of increased demand for crude this summer. Natural gas was up 0.8% on forecasts for warmer weather for most of the country.
The equity market was more cautious on growing concern the Federal Reserve Bank will soon began to wind down its bond-purchase program aimed at stimulating the economy. The SIG Oil Exploration & Production Index and the Oil Service Index followed oil prices higher, however, up 2.1% and 0.9%, respectively.
US crude market
“The US is the world’s largest consumer and importer of crude oil, and consequently its growing tight oil production has had a significant impact (and will potentially have an even larger impact) on the global oil market,” said Marc Ground at Standard New York Securities Inc., the Standard Bank Group. Imported crude accounted for 57% of total US consumption in 2012, down from 66% in 2005, he said.
“Although other factors such as a fall in demand post-2008 and an increase in conventional oil production played their part, it is also no coincidence that this fall in imports has coincided with the dramatic increase in tight oil production (since 2005 net imports fell 1.7 million b/d, while tight oil production has grown 1.8 million b/d),” Ground said.
This has affected crude imports from the Organization of Petroleum Exporting Countries and non-OPEC producers equally, with “both groups losing around 800,000 b/d of exports each to the US from 2005 to 2012,” said Ground. Hardest hit among OPEC members is Nigeria (down 670,000 b/d), Venezuela (340,000 b/d), and Angola (240,000 b/d).
“The loss to non-OPEC members has been fairly widespread, although Mexico and the UK have suffered the most, having lost 580,000 b/d and 210,000 b/d of net exports [respectively, in 2005-12],” he reported. “For the OPEC producers, most of the lost exports to the US have been redirected to China. This is particularly true for Angola, which has seen growing production; while Venezuelan production has been in decline and Nigerian production has been volatile, in both instances due to varying degrees of natural resource exhaustion, maintenance issues, and lack of investment.”
Over the medium term, countries exporting to the US crude with characteristics most like oil extracted from US shale formations stand to lose the biggest market shares. These include Brent, Bonny Light, and Cabinda crudes from the UK, Nigeria, and Angola, respectively. “This impact will be less felt in the UK, with its production already in decline due to resource exhaustion. For Nigeria and Angola, which both still have many years of viable and potentially increasing production, the loss of the US market has a potentially greater impact. As per their 2012 exports to the US, Nigeria could have to find a new destination for 405,000 b/d (20% of total exports) and Angola 221,000 b/d (14%),” Ground said. However, he said, “It appears as if China would be ready to absorb these displaced exports, with the ultimate effect that these countries’ exports are not adversely impacted, but rather that they just become more dependent on Chinese demand.”
Energy prices
The June contract for benchmark US sweet, light crudes climbed 69¢ to $96.71/bbl May 20 on the New York Mercantile Exchange. The July contract gained 64¢ to $96.93/bbl.
On the US spot market, West Texas Intermediate at Cushing, Okla., was up 59¢ to $96.61/bbl in a rare divergence from the closing price of the front-month futures contract.
Heating oil for June delivery increased 1.38¢ to $2.95/gal on NYMEX. Reformulated stock for oxygenate blending for the same month dipped 0.13¢ but finished essentially unchanged at a rounded $2.91/gal.
The June natural gas contract continued its rally, up 3.5¢ to $4.09/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., regained 21.3¢ to $4.01/MMbtu, wiping out its loss from the previous session.
In London, the July IPE contract for North Sea Brent advanced 16¢ to $104.80/bbl. Gas oil for June lifted $7 to $883/tonne.
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 50¢ to $101.95/bbl. So far this year, OPEC’s basket price has averaged $106.39/bbl.
Contact Sam Fletcher at [email protected].
