MARKET WATCH: Deteriorating European crisis drags down energy prices
Energy prices tumbled lower June 1 on fears of declining demand at the end of the first week of the summer driving season with markets focused on the deteriorating European debt crisis.
Like some Hollywood monster in a horror movie, “the European debt crisis just won't die and in fact is getting even worse,” said analysts in the Houston office of Raymond James & Associates Inc. “The flight to safety trade intensified to new levels as investors stampeded into US, British, and German bonds, driving the interest rate on the 10-year Treasury to a record low of 1.47%.”
Meantime, they said, “Spain is inching closer to a bailout, leading to the question on everyone's minds: can the Euro-zone survive?”
On the other hand, Raymond James analysts reported, “Against the backdrop of flat-to-down oil production in most of Latin America, Brazil's oil boom remains robust with Petrobras leading the way. Having grown its domestic oil production by an average of 3.4%/year between 2002 and 2011—despite a markedly slower performance over the past few years—Petrobras has laid out a highly ambitious target of 11% annualized growth in 2011-15, with sustained expansion thereafter through 2020. Alongside support from the Western majors and oil service providers, Petrobras’s aggressive capital spending program and project development pipeline imply that Brazil is likely to surpass Mexico as the No. 1 oil producer in Latin America by mid-decade.”
Such robust growth is not without risks, of course, including project delays, presalt development risk, capital markets risk, and political risk. “For all these reasons,” Raymond James analysts said, “we wouldn't be surprised to see Petrobras’s production targets being toned down somewhat in the coming years—and our Petrobras model ‘discounts’ the 2015 guidance by 17%—but it’s still safe to say that Brazil is set to be one of the few major oil producers [including both the Organization of Petroleum Exporting Countries or non-OPEC] with material production growth over the next 5-10 years.”
Energy prices
The July contract for benchmark US light, sweet crudes bounced between $82.27-86.59/bbl in intraday trading June 1 on the New York Mercantile Exchange before closing at $83.23/bbl, down $3.30 for the day. The August contract dropped $3.29 to $83.56/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was down $3.30 to $83.23/bbl.
The new front-month July contract for heating oil lost 7.53¢ to $2.63/gal on NYMEX. Reformulated stock for oxygenate blending for the same month decreased 6.59¢ to $2.66/gal.
The July natural gas contract fell 9.6¢ to $2.33/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 9.5¢ to $2.24/MMbtu.
In London, the July IPE contract for North Sea Brent was down $3.44 to $98.43/bbl. Gas oil for June tumbled $23 to $847.75/tonne.
The average price for OPEC’s basket of 12 benchmark crudes declined $2.62 to $97.44/bbl. So far this year, OPEC’s basket price has averaged $115.43/bbl.
Contact Sam Fletcher at [email protected].
Sam Fletcher | Senior Writer
I'm third-generation blue-collar oil field worker, born in the great East Texas Field and completed high school in the Permian Basin of West Texas where I spent a couple of summers hustling jugs and loading shot holes on seismic crews. My family was oil field trash back when it was an insult instead of a brag on a bumper sticker. I enlisted in the US Army in 1961-1964 looking for a way out of a life of stoop-labor in the oil patch. I didn't succeed then, but a few years later when they passed a new GI Bill for Vietnam veterans, they backdated it to cover my period of enlistment and finally gave me the means to attend college. I'd wanted a career in journalism since my junior year in high school when I was editor of the school newspaper. I financed my college education with the GI bill, parttime work, and a few scholarships and earned a bachelor's degree and later a master's degree in mass communication at Texas Tech University. I worked some years on Texas daily newspapers and even taught journalism a couple of semesters at a junior college in San Antonio before joining the metropolitan Houston Post in 1973. In 1977 I became the energy reporter for the paper, primarily because I was the only writer who'd ever broke a sweat in sight of an oil rig. I covered the oil patch through its biggest boom in the 1970s, its worst depression in the 1980s, and its subsequent rise from the ashes as the industry reinvented itself yet again. When the Post folded in 1995, I made the switch to oil industry publications. At the start of the new century, I joined the Oil & Gas Journal, long the "Bible" of the oil industry. I've been writing about the oil and gas industry's successes and setbacks for a long time, and I've loved every minute of it.
