Texas Alliance PetroIndex: WTI posted price likely to remain high

Nov. 9, 2004
The posted price for West Texas Intermediate crude averaged $42.38/bbl in September, marking the second consecutive month above $40/bbl, said Karr Ingham, president of Economic Reporting, Amarillo, Tex., in a late-October report on third-quarter operations for the Texas Alliance of Energy Producers.

Sam Fletcher
Senior Writer

HOUSTON, Nov. 8 -- The posted price for West Texas Intermediate crude averaged $42.38/bbl in September, marking the second consecutive month above $40/bbl, said Karr Ingham, president of Economic Reporting, Amarillo, Tex., in a late-October report on third-quarter operations for the Texas Alliance of Energy Producers.

"The crude oil price environment is clearly the big news of the present as futures prices move into the mid-$50[/bbl] range, and daily posted prices paid to producers have now exceeded $50[/bb/] as well," Ingham said in a presentation Oct. 28 in Houston.

As of Nov. 5, the December contract for benchmark US light, sweet crudes was down to $49.61/bbl on the New York Mercantile Exchange, while the US spot market for WTI at Cushing, Okla., was at $49.62/bbl, after both exceeded $55/bbl in late October.

However, the earlier upward price movement and corresponding surge in the value of Texas crude production, along with increases in Texas rig counts and drilling permits, pushed the Texas PetroIndex to 156.6 in September, up from 154.3 in August and up 13.3% from September 2003, Ingham said. The Texas rig count of 523 in September was the highest of the post-980s era, he reported. In computing the index oil price, Ingham uses average WTI postings.

Even when futures and spot prices were above $50/bbl, Ingham found the price level from which that surge occurred to be "far more intriguing and important." He said, "Price spikes are nothing new, and the recent supply concerns based on weather-related production disruptions in the Gulf of Mexico and worries about an oil worker strike in Nigeria are the culprit de jour. Prior to that, though, prices had moved to $40[/bbl]-plus on much more substantial and long-term market conditions based on the likelihood that growing global demand for petroleum products is outstripping declining worldwide production."

The US Minerals Management Service said Monday that gulf production totaling 212,258 b/d of crude and 741.56 MMcfd of natural gas remained shut in because of damage inflicted in mid-September by Hurricane Ivan, not counting lost production from a handful of platforms destroyed by that storm. Production lost since Sept. 11 to offshore wells shut in by the storm now totals nearly 28.5 billion bbl and almost 115.5 bcf of natural gas, officials said.

Meanwhile, the Nigeria Labor Congress has called for a general strike Nov. 16 that is expected to cut off oil supplies from Nigeria, the seventh largest exporter of crude, if that government refuses to roll-back recent increases in fuel costs in that country.

Therefore, there is still support for Ingham's claim that "prices are not likely to decline materially anytime soon. The US economy is improving and growing, European economies are finally on the mend, and the Chinese economy—a developing and maturing economy—is growing at an annualized rate of nearly 10%, and Chinese crude oil imports are up nearly 20% compared to a year ago."

Even before the start of winter demand in November, Ingham said, "US heating oil inventories are on the wane, and the combined global result is likely to be an increase in consumption of 4-5% in the fourth quarter."

Contact Sam Fletcher at [email protected]