Higher oil prices to match higher natural gas prices | Rigzone

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)

In this week’s edition of the successes and failures of the oil and gas industry, regular Rigzone market watchers take a closer look at commodity prices, energy transition, OPEC + developments and more. . Read on to find out what they had to say.

Rigzone: What were the market expectations that actually happened over the past week – and what expectations didn’t happen?

Tom Seng, Director – School of Energy Economics, Policy and Commerce, Collins College of Business, University of Tulsa: Strong fundamentals continue to support rising oil prices. WTI broke the $ 76 per barrel mark while Brent peaked at $ 80 this week as each grade hit 3-year highs. In many cases, higher oil prices are a function of higher natural gas prices. As the UK, mainland Europe and Asia all experience natural gas shortages and higher LNG prices, some utilities and industries are turning to oil, creating an unexpected demand for crude. Many Asian LNG contracts are still tied to an imported oil price basket. Despite the return of the majority of production, outages from the Gulf of Mexico to the United States are still being felt around the world. Meanwhile, China has ordered its major energy companies to stock up on oil before winter at any price, thus firmly supporting global oil prices. Demand for oil has increased by around 12% in the past six months due to the end of lockdowns and successful vaccination campaigns in many areas. Meanwhile, the supply has only increased by four percent. In line with planned production increases, OPEC + will add + 400,000 barrels per day on October 1. The group will hold a meeting on Monday October 4 to consider possible further increases in production.

The only bearish sign came from the weekly inventory report which showed unexpected increases across the board. This week’s EIA Weekly Petroleum Status Report reported that commercial oil inventories rose +4.6 million barrels to 418 million barrels, seven percent below the average for this time of year. API said inventories fell by -4.1 while S&P analysts forecast a drop of -4.5 million barrels. Refinery utilization was 88.1% compared to 87.5% the previous week. Total motor gasoline inventories edged up 200,000 barrels, 3% below the average of 5 for this time of year. Distillate inventories increased by +400,000 barrels and are now 12% below the 5-year average. Crude Oil Stocks at Cushing’s Key, OK. Hub grew by 130,000 barrels to 33.9 million barrels, or about 45% of its capacity. 900,000 barrels have been withdrawn from the United States Strategic Petroleum Reserve. US oil production increased by +500,000 barrels per day to 11.1 million barrels per day. Pre-Ida production had reached 11.5 million barrels per day. Royal Dutch Shell does not expect its US infrastructure in the Gulf of Mexico damaged by Ida to be operational until 1Q22.

The US economy has not been a factor supporting crude prices as the Dow, S&P and NASDAQ are all down this week, with the Dow losing the most September since October 2020. The US dollar s ‘is generally traded higher this week but has not set a cap. on crude prices.

Jon Donnel, Managing Director, B. Riley Advisory Services: Natural gas prices have continued to climb as storage levels in Europe hit a decade low ahead of the winter heating season. The reduced supply on hand is creating a global rush to purchase additional volumes, resulting in record prices for natural gas in Europe and LNG in Asia. NYMEX prices topped $ 6.00 / mmbtu this week, with the impacts reaching US markets as well. On Thursday evening, Chinese state-owned energy companies were ordered to secure their supplies “at all costs”, suggesting that further price increases for natural gas, oil, coal and electricity are on the way.

Tom McNulty, Houston-based Director and Head of Energy Practice at Valuescope, Inc: I think the demand for energy will continue to rise unabated, and that demand will not “cooperate” with attempts to cut fossil fuel production too quickly. The recent rise in natural gas and LNG prices in Europe and Asia is leading to increased demand for coal and oil. These are two obviously carbon intensive sources for power generation and are more carbon intensive than natural gas. As winter approaches in the northern hemisphere this will become very problematic unless natural gas production expands rapidly.

Barani Krishnan, Senior Commodities Analyst at Investing.com: OPEC + envisions production exceeding the 400,000 barrels per day it had initially committed, with oil prices at nearly three-year highs.

Rigzone: What were the surprises of the market?

Mark Le Dain, vice president of strategy at oil and gas data firm Validere: LNG prices continue to surprise with new records announced daily. Europe, the UK in particular, is a prime example of how not having a consistent basic diet actually risks supporting consumers in the energy transition. A number of countries have phased out nuclear but have not built the gas storage to replace it and now have extremely high prices at the same time that renewable contributions are lower than expected, especially wind in the UK. United. The risk now for other countries to speed up their transition is that you clearly need to keep electricity prices at levels where you still have broad support and it doesn’t affect lives and business so negatively. . Natural gas is probably still the best approach here.

Seng: Global LNG prices are skyrocketing to the point of switching from fuel to oil and China’s mandate that energy companies stock up at all costs in winter.

Donnel: Crude participated in the rally in commodities despite relatively bearish data points during the week. Storage levels in the United States rose by nearly five million barrels, the dollar index was near 12-month highs, and U.S. production was back at over 11 million barrels per day as sinks GOM continue to return to service after recent hurricanes. However, WTI was above $ 75 a barrel at the time of this writing and Brent hit $ 80 a barrel earlier in the week, indicating that demand remains strong. Pay attention to this side of the equation if prices stay high. Current prices don’t mean destruction of demand is imminent, but broader inflation rates look less transient by the week and aggregate purchasing power could be under pressure.

Krishnan: The US Energy Information Administration said crude inventories rose 4.58 million barrels in the week to September 24, from an expected decline of 2.2 million. Instead of significantly correcting on the data, crude prices, which have risen more than 10 percent since early September, lost less than 1 percent in Wednesday’s trading after the data. This clearly shows that the bulls controlling the market were more focused on the Goldman Sachs’ $ 90 a barrel Brent call (now at just under $ 80) by the end of the year, compared to a likelihood of US weekly stocks rising continually from here. . The EIA also said gasoline inventories increased by 193,000 barrels last week, from an expected draft of 1.5 million. It was the second consecutive weekly increase in gasoline inventories, which rose $ 3.48 million from the previous week. Even that has been ignored by the market. At least OPEC + seems to recognize that the market can get ahead and has decided to slow things down a bit with higher production at its meeting next week.

Mcnulty: I thought the increase in platform count of just +9 was a surprise, expecting it to increase further. Expect the number of drilling rigs in North America to increase further in the coming months, especially as demand for natural gas continues to increase.

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Steve R. Hansen

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