Sam Fletcher
OGJ Senior Writer
HOUSTON, Oct. 12 -- Oil prices continued to climb Oct. 9 as the US dollar continued to weaken and the Paris-based International Energy Agency raised its forecasts for global oil demand in its latest monthly report.
“The dollar index continued to drift lower during the week and is a main contributor both to the equilibrium of the equity and the commodity prices,” said Olivier Jakob at Petromatrix, Zug, Switzerland. The dollar’s value has dropped 14% against other key currencies since early March while the price of crude has increased some $20/bbl.
IEA increased its world demand forecasts by 200,000 b/d for 2009 and by 350,000 b/d for 2010, based on a more optimistic economic prognosis from the International Monetary Fund and stronger preliminary data in North America, Asian countries outside the Organization for Economic Cooperation and Development, and Latin America. Global oil demand now is expected to average 84.6 million b/d in 2009 and 86.1 million b/d in 2010. This implies a contraction of 1.7 million b/d this year and growth of 1.4 million b/d next year (OGJ Online, Oct. 9, 2009).
In New Orleans, analysts at Pritchard Capital Partners LLC cautioned, “Despite what some call an improving economy, crude products are near record highs [in storage quantities], with distillate stocks 30% above their 5-year average and gasoline 9% above its 5-year average. We do not expect crude to surpass $75/bbl resistance until product stocks decline—a real sign of economic recovery.”
Market outlook
Analysts at the Houston office of Raymond James & Associates Inc. said, “Foreign leaders continue to ‘dump the dollar’ even after they increased foreign currency holdings by over $400 billion during the third quarter and sent the dollar into its biggest decline on a trade-weighted basis in over 18 years.”
They said: “Over the next 18 months, the shelving of incremental oil projects, a modest rebound in global oil demand, and concerns over global inflation should continue to firm global oil prices. We remain comfortable with our $80/bbl 2010 oil price forecast, which is more than 10% above current market expectations. Should the global economy rebound strongly (i.e., a V-bottom), our 2010 oil price estimate could prove conservative.”
However, Pritchard Capital Partners noted, “Product stocks continue to increase, a sign that demand in the US is not improving, as gasoline stocks gained 2.937 million bbl [in the week ended Oct. 2] and distillate stocks grew 679,000 bbl.” They said, “Crude prices continue to ignore near-term fundamentals and trade at an inverse relationship to the US dollar.”
Despite rising gas storage, Pritchard Capital analysts said, “Drilling in the Marcellus [shale play] continues to move along with 184 permits issued in September (horizontal only) vs. 91 in August (horizontals only).”
Raymond James said, “Given the number of uncompleted wells and shut-in supply that will hit the market at such prices, we believe any natural gas price rally could disappoint this winter. Moreover, our model suggests that natural gas storage will be at or near full [again] this time next year. As a result, we have lowered our 2010 natural gas price forecast to $5.50/Mcf, which is now about 10% below current market expectations.”
The front-month crude contract was up 1.5% while natural gas climbed more than 2% in early trading Oct. 12 on the New York market, after an early winter chill touched much of the country over the weekend.
Raymond James analysts said, “With our bullish outlook on oil but bearish stance on natural gas, we are looking for significant variability in profitability among the majors. This is a result of their differences not only in commodity mix (oil vs. gas), but also in business segment weightings (upstream vs. downstream), geographic focus (North America vs. overseas), and cash flow allocation (capital spending vs. share buyback). Looking downstream, we are projecting global refining overcapacity through at least 2012; therefore, keeping margins under pressure. With our bearish view on crack spreads, both domestically and internationally, we have a generally cautious view on independent refiners.”
Energy prices
The November contract for benchmark US light, sweet crudes increased 8¢ to $71.77/bbl Oct. 9 on the New York Mercantile Exchange. The December contract gained 11¢ to $72.25/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 8¢ to $71.77/bbl. Heating oil for November delivery inched up 0.59¢ but remained essentially unchanged at an average $1.85/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month lost 1.17¢ to $1.77/gal.
The November natural gas contract dropped 19.3¢ to $4.77/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., fell 23¢ to $3.92/MMbtu.
In London, the November IPE contract for North Sea Brent crude increased 23¢ to $70/bbl. Gas oil for October gained $9 to $573.25/tonne.
The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes climbed by $1.03 to $68.86/bbl on Oct. 9. So far this year, OPEC’s basket price has averaged $56.99/bbl.
Contact Sam Fletcher at [email protected].