Sam Fletcher
OGJ Senior Writer
HOUSTON, Aug. 6 – Crude and natural gas prices rebounded Aug. 5 in the New York market, wiping out losses of the previous session, with oil climbing in late trading to just short of $72/bbl as the US dollar fell against a group of six major currencies.
“Natural gas rose on news that Enterprise Products Partners LP shut its 42-in. Gulf of Mexico pipeline due to an explosion at a compressor plant,” said analysts at Pritchard Capital Partners LLC, New Orleans.
In Houston, analysts at Raymond James & Associates Inc. reported Platform 264 B of the High Island Offshore System caught fire, forcing temporary suspension of service on the connecting pipeline. “While the fire did not damage the main pipeline, there has been damage to the platform,” they said. Platform B houses compressors used to boost throughput on the line. Platform A, which houses operational personnel, was not affected.
While the system has the capacity to transport 1.8 bcfd of gas from the gulf to pipelines off the Louisiana coast such as ANR Pipeline Co, Tennessee Gas Transmission Corp., and the UT Offshore System (UTOS), its average throughput last year was 300 MMcfd. “As a result of last year's hurricane damage, the pipeline was only transporting 200-300 MMcfd during the recent past,” analysts said.
“As of the last update, TransCanada (owner of the ANR pipeline) stated approximately 227 MMcfd was reduced across its system, whereas El Paso Corp., owner of the Tennessee Gas system, reported no impact,” they said. “The partnership is currently looking for ways to reroute some gas around the platform or even run the pipeline without compression. For now, the estimated repair time or associated cash flow impacted remain uncertain.”
Raymond James analysts added, “The Independence Hub platform in the Gulf of Mexico is expected to operate at reduced rates (700-800 MMcfd vs. recent trends of 900 MMcfd) throughout the remainder of the third quarter due to maintenance on separators (used to remove contaminants within the natural gas stream). Industry channel checks indicate that seven separators (one per each field connected) will need maintenance (1-2 weeks repair each), which should average 50-55 days of aggregate repair downtime.”
They project flows through the hub could be reduced by 200-300 MMcfd “on any given day” during the quarter as each separator is brought down for maintenance individually.
Underground gas storage increases
The Energy Information Administration reported Aug. 6 the injection of 66 bcf of gas into US underground storage in the week ended July 31. That boosted the amount of working gas in storage to 3.09 tcf, up 580 bcf from the year-ago level and 496 bcf above the 5-year average.
EIA earlier said commercial inventories of benchmark US crudes increased by 1.7 million bbl to 349.5 million bbl in the week ended July 31. Gasoline stocks dipped by 200,000 bbl to 212.9 million bbl during the same period, and distillate fuel inventories decreased by 1.1 million bbl to 161.5 million bbl (OGJ Online, Aug. 5, 2009).
The “most positive point” of the EIA report on oil inventories “was the increase in implied gasoline and distillate demand,” said Pritchard Capital Partners. “Implied gasoline demand increased from 9.326 million bbl to 9.354 million bbl, and implied distillate demand increased from 3.940 million bbl to 4.1 million bbl. The gasoline demand figure is still 200,000 bbl below the 2008 period, but any increase is a positive sign for the overall economy.”
Raymond James analysts also saw the drawdown of distillates as “a bullish indicator that the overall economy was finally turning around.” They said, “Keep in mind that distillate inventories are the only group of petroleum inventories that have continued to build week after week and are still at record highs.”
Analysts at Energy Solutions Inc., Verona, Wis., said, “For 2 weeks in a row, the EIA reported a build in crude oil stocks, and this is typically the time of the year for reductions. Even so, the front-month crude oil contract on the New York Mercantile Exchange has managed to gain close to $10/bbl since July 29, while at the same time crude oil inventories have risen to 24-year highs.”
They noted, “The story is similar for natural gas. Fundamentals are bearish and storage inventories are at record highs. That is why it is so difficult to explain the quick and significant price move Aug. 3 that occurred in just 10 minutes.” On that date at 9-9:10 a.m. EST, the September natural gas NYMEX contract rallied from $3.708/MMbtu to $4.162/MMbtu. “The rally has been chalked up to being a major play by a larger player who either decided to get into the market quickly or get out quickly. There is also ‘speculation’ that this price move may have been caused by a player who decided to exit the market rather than risk being subjected to potentially new contract limitation restrictions that are being discussed by the government,” said Energy Solutions analysts.
Either way, they called the price jump “a subtle reminder that no matter how bearish things may be, the market can sometimes move in the opposite direction for no reason at all.” Since that rally, the September NYMEX gas contract has retained most of its price gains, but it has since also gained some support from the anticipation of hotter temperatures in the Midwest and Northeast and the mishap on Platform 264 B of the High Island Offshore System, they said.
Energy prices
The September contract for benchmark US sweet, light crudes hit an intraday high of $72.10/bbl before closing at $71.97/bbl, up 55¢ for the day on NYMEX. The October contract gained 63¢ to $73.93/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased 55¢ to $71.97 in lockstep with the front-month futures contract. Heating oil for September delivery advanced 5.55¢ to $1.96/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month dropped 0.55¢ to $2.05/gal.
The September natural gas contract increased 4.1¢ to $4.04/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., climbed 11.5¢ to $3.67/MMbtu.
In London, the September IPE contract for North Sea Brent crude rose $1.23 to $75.51/bbl. Gas oil for August escalated $11.25 to $607/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes was up 92¢ to $72.45/bbl.
Olivier Jakob at Petromatrix, Zug, Switzerland, observed, “Technically, the oil markets are currently split in two. On one hand there are WTI and RBOB gasoline that are congesting in a narrow range unable for now to break the resistance of previous highs. On the other hand there are Brent crude oil and heating oil that are maintaining a very positive advancing momentum and have been able to break away from the resistance of previous highs.”
However, he said, “This two-tier structure in the oil markets is not going to last forever, and the risk will be increasing for a greater convergence between the two crude oil futures markets. As long as equities continue to be supported (they are) and the dollar index to be pressured (it is), then we need to give more weight for the convergence to occur upwards towards Brent. Brent has been able to break the psychological barrier of $75/bbl and is helped by a narrow contango (about 30¢/bbl) and could pull WTI towards a more significant test of its previous highs. Breaking those should attract further flows from momentum models into WTI.”
Contact Sam Fletcher at [email protected]
Rystad Energy.
