MARKET WATCH: Mideast turmoil, improved economic figures lift oil prices

Oil prices rose across the board July 3 with front-month crude climbing 1.6% in the New York futures market as the Egyptian military forced from office Mohammed Morsi, Egypt’s first democratically elected president.

Backed by opposition factions and religious leaders, the generals took Morsi in custody, suspended Egypt’s constitution, and appointed an interim cabinet to run the country until new elections. On July 5, the turmoil escalated as the military fired on pro-Morsi demonstrators in Cairo. The Muslim Brotherhood that backed Morsi had organized protests in Cairo and other cities.

Meanwhile, Syrian troops backed by Lebanese Hezbollah militants pounded rebel positions in Homs, Syria, with artillery and airstrikes for the sixth consecutive day.

Fear that hostilities in the Middle East may spread and threaten crude supplies is buoying oil prices. Natural gas futures pared early losses July 3 to close with a gain although the Energy Information Administration reported a smaller-than-expected addition to underground storage in the week ended June 28. The Oil Service Index was up 0.4% while the SIG Oil Exploration & Production Index rose 0.8%. Crude and equity prices were higher but natural gas was down in early trading July 5.

Market factors

Analysts in the Houston office of Raymond James & Associates Inc. see three key points involving energy as a result of the second revolution in Egypt in less than 2½ years. “First, in contrast to the original revolution, which was part and parcel of the Arab Spring, this week’s political shift in Egypt is a stand-alone event and does not carry any international read-through,” they said. “Second, there was no disruption to Egyptian oil and gas production either during or after the original revolution. Oil output, for example, has held steady near 700,000 b/d (0.8% of global supply) since 2008.”

The third factor, they said, the impact of the Egyptian crisis on rising oil prices so far “has been a pure sentiment trade. We don’t envision this continuing unless the situation on the ground were to markedly deteriorate—a Syria-like scenario that seems a truly remote prospect in the context of Egypt’s much more pluralistic, open society.”

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, said, “As expected, markets were quiet [July 4] as many participants outside the US opted for the sidelines and await the return of US traders (many US participants may extend their holiday into the weekend) and the much anticipated nonfarm payrolls” report to be released July 5.

Market focus, he said, “is firmly on US nonfarm payrolls data in that the Federal Reserve Bank’s decision to pare back quantitative easing [QE] hinges on future data flow (particularly surrounding the labor market). Broad guidance is that a 7% unemployment rate is required to end QE3 completely; the Fed baseline is that the labor market should reach this point by the end of the first half of 2014. Recent data flow (labor and other data) has served to strengthen the argument for the Fed to pare back bond purchases in the coming months, with market consensus clustering around the September meeting [of the Federal Open Market Committee, the Fed’s policy-making arm] as the most likely opportunity to start this tapering.”

Ground said, “The effect of Fed tapering on the dollar (strengthening) still looms large…. [W]e view the dollar’s reaction (and the related reaction in interest rates) to a paring in Fed bond purchases as a major downside risk to our price forecasts over the coming quarter.”

US inventories

EIA reported July 3 commercial US crude inventories fell 10.3 million bbl to 383.8 million bbl in the week ended June 28, far exceeding Wall Street’s consensus for a 2.3 million bbl draw. US crude stocks remain above average for this time of year, however. Gasoline inventories dropped 1.7 million bbl to 223.7 million bbl last week, counter to market expectations for an increase of 700,000 bbl. Gasoline stocks also are well above average, although both finished gasoline inventories and blending components declined last week. Distillate fuel inventories were down 2.4 million bbl to 120.8 million bbl. Analysts anticipated a 1 million bbl increase.

“The large crude drawdown came as a result of higher week-over-week refinery utilization (92.2% vs. 90.2% the previous week), and a 900,000 bbl decline in crude imports. Total petroleum demand was 8% higher [last] week as well, following [the previous] week's 3% increase,” Raymond James analysts said. “However, on a 4-week moving average basis, total petroleum demand is up merely 0.1% year-over-year. Cushing, Okla., inventories increased for the second consecutive week, rising 400,000 bbl to 49.7 million bbl, which is 2 million bbl higher than this time last year.

EIA also reported injection of 72 bcf of natural gas into US underground storage last week, below Wall Street’s consensus for a 74 bcf increase. That brought working gas in storage to 2.605 tcf, down 491 bcf from the comparable period a year ago and 30 bcf below the 5-year average.

“Front-month gas prices were trading down 2¢ to $3.63/Mcf immediately following the release,” Raymond James analysts reported. “Excluding weather-related demand, there was 4.2 bcfd of additional natural gas added to storage [last] week compared with last year, and we have averaged 4.25 bcfd looser over the past 4 weeks. The run-up in gas prices over $4/Mcf has clearly led coal to gain some share back vs. gas. However, less severe weather has whittled the year-over-year deficit 300 bcf from its peak north of 800 bcf, though we remain at a healthy deficit of 491 bcf. However, in order to fill enough gas for the winter heating season, we believe gas prices must remain elevated in order to spur enough gas-to-coal switching. By our math we need to run 4 bcfd looser for the remainder of summer in order to fill storage, a level which would require gas prices to average around $4/Mcf over this time period.”

Energy prices

The August contract for benchmark US light, sweet crudes continued escalating, up $1.64 to $101.24/bbl July 3 on the New York Mercantile Exchange where regular trading was closed July 4 for the US Independence Day holiday. The September contract climbed $1.69 to $101.11/bbl. On the US spot market, West Texas Intermediate at Cushing was up $1.64 to $101.24/bbl.

Heating oil for August delivery increased 4.98¢ to $2.95/gal on NYMEX. Reformulated stock for oxygenate blending for the same month jumped 5.49¢ to $2.84/gal.

The August natural gas contract rose 3.6¢ to $3.69/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 5.5¢ to $3.52/MMbtu.

In London, the August IPE contract for North Sea Brent gained $1.76 to $105.76/bbl. Gas oil for July rebound $23.50 to $903.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased $1.61 to $102.24/bbl July 3 and then rose to $102.39/bbl July 4.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

Statoil reduces capital budget by $2 billion following 4Q losses

02/06/2015 Statoil ASA has reduced its organic capital expenditure to $18 billion in 2015 from $20 billion in 2014. The move comes on the heels of a fourth qu...

Chinese regulators approve Sinopec’s plan for grassroots refinery

02/06/2015 China’s National Development and Reform Commission (NDRC) has approved Sinopec Beijing Yanshan Petrochemical Co. Ltd., a subsidiary of China Nation...

BOEM schedules public meetings about draft proposed 5-year OCS plan

02/06/2015 The US Bureau of Ocean Energy Management will hold the first of 20 public meetings in Washington on Feb. 9 to receive public comments on potential ...

Union strike ongoing at US refineries as negotiations continue

02/06/2015 A strike by union workers at nine US refining and petrochemical production plants remains under way as the United Steelworkers Union (USW) continue...

NCOC lets $1.8-billion pipeline contract for Kashagan field

02/06/2015 North Caspian Operating Co. (NCOC) has let a $1.8-billion engineering and construction contract to ERSAI Caspian Contractor LLC, a subsidiary of Sa...

AOPL releases 2015 safety performance and strategic planning report

02/06/2015 The Association of Oil Pipe Lines is committed to further improvements despite a 99.99% safe petroleum liquids delivery rate, AOPL Pres. and Chief ...

MARKET WATCH: NYMEX oil price bounces back up somewhat

02/06/2015 Crude oil prices on the New York market bounced up $2/bbl to settle slightly above $50/bbl Feb. 5. The positive momentum continued during early Jan...

Congressional Republicans renew bid to halt sue-and-settle maneuvers

02/05/2015 Calling it an affront to regulatory accountability that results in unchecked compliance burdens, US Sen. Charles E. Grassley (R-Iowa) and US Rep. D...

Oil-price collapse may aggravate producing nations’ other problems

02/05/2015 The recent global crude-oil price plunge could be aggravating underlying problems in Mexico, Colombia, and other Western Hemisphere producing natio...
White Papers

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

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...
Available Webcasts


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

When Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST



On Demand

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

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


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


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