Commodity Corner: Crude Falls as Dollar Rebounds

Crude futures fell Thursday as economic worries resurfaced and the dollar rebounded against the euro. Oil prices for December delivery settled at $80.56 a barrel, down 2.4 percent from the previous day. Prices continued to feel the ripple from China's decision Tuesday to increase interest rates. As the Chinese government reported, projected third quarter gross domestic product growth fell to 9.6 percent from a 10.3 percent growth rate in the second quarter.

The second largest oil consumer after the U.S., China, is estimated to account for approximately 40 percent of an expected 2.1 million barrel per day increase in global oil demand this year and approximately one third of a 1.2 million-b/d increase next year, according to the International Energy Agency. The dollar rose 0.3 percent against the euro Thursday after falling earlier as much as 0.6 percent. Light, sweet crude futures traded between $80.09 and $82.70.

Likewise, natural gas futures plummeted to new 13-month lows Thursday. Henry Hub natural gas decreased 4.8 percent and settled at $3.37 per thousand cubic feet. The U.S. Energy Information Administration (EIA) reported that natural gas inventories grew by 93 billion cubic feet last week, marking the sixth consecutive above average weekly build. According to the inventory report, the U.S. had 3.68 trillion cubic feet of natural gas in underground storage last week.

The National Hurricane Center observed a tropical storm headed toward Mexico's Yucatan Peninsula Thursday. The system, Tropical Storm Richard, formed in the northwestern Caribbean Sea. Meteorologists predict that the storm may continue into the Gulf of Mexico, but major impact should be prevented by the high wind shear. The intraday range for natural gas was $3.35 to $3.54 Thursday. November delivery gasoline prices settled at the lowest point since Sept. 29 at $2.04 a gallon, after peaking at $2.08 and bottoming out at $2.03.

Courtesy of Rigzone.Com


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Commodity Corner: China Increases Rate, Crude Falls

Light, sweet crude futures plummeted Tuesday after China raised interest rates, sparking concerns that demand for raw materials could decrease and sending the dollar higher against the euro. Oil for November delivery fell 4.32 percent, or $3.59, settling at $79.49 a barrel, the lowest in eight months. The November contract expires Wednesday.

In an effort to slowdown China's rapid growth, the People's Bank of China Tuesday increased its lending and deposit rates by 25 basis points each for the first time since 2007. China's oil imports reached record highs in September. Investors fear that China's decision could hinder global growth and decrease its demand for oil and other commodities. Amid increasing U.S. stockpiles, traders turn to global demand; China, the second largest consumer of oil after the U.S., has become an important channel for oil supplies.

The dollar rose 1.8 percent against an index of foreign currencies, indicating wariness that the Chinese move may reduce economic growth. As the greenback gained momentum, demand for oil decreased. Oil prices fluctuated between $79.39 and $83.21 a barrel Tuesday. Meanwhile, Henry Hub natural gas futures rose Tuesday as traders sensed a buying opportunity after oil prices plunged. Front month natural gas settled up at $3.51 per thousand cubic feet, after plunging to a 13 month low of $3.40. In earlier trading, natural gas posted a session high of $3.53.

November reformulated gasoline blendstock, or RBOB, settled at $2.05 a gallon after declining 4.98 percent the biggest one day percentage fall in more than a year. The intraday range for gasoline was $2.04 to $2.15 a gallon.

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Commodity Corner: French Labor Strife, Equities Boost Crude Oil

Ongoing French labor unrest and its effect on the country's refineries and fuel terminals contributed to a $1.83 increase in the oil futures price Monday. Crude oil for November delivery settled at $83.08 as French refinery workers, truckers, students, and others continued to strike in protest of the Sarkozy government's attempt to change the retirement age from 60 to 62. The retirement age increase, which would be fully phased in by 2018, has already been approved by France's National Assembly. The Senate is set to vote on the measure Wednesday, and strikers hope the civil unrest will pressure the upper chamber to kill Sarkozy's pension reform plan.

Strikers have prevented oil tankers from entering the major southern port of Fos Lavera, and all 12 of France's refineries have been shut down. Moreover, the protesters have attempted to block access to fuel terminals. An official with a fuel importers' group said Monday morning that roughly 1,500 of France's 12,000 retail fuel outlets have exhausted their supplies of some or all types of fuel. Also having a bullish effect on oil Monday were rising equities markets, with the Dow Jones Industrial Average and S&P 500 each closing up more than 0.7%. Crude oil traded within a range from $80.35 to $83.08 Monday.

The price of a gallon of gasoline also surged, thanks to many of the issues affecting crude oil. Front month gasoline settled a nickel higher at $2.15 after fluctuating between $2.09 to $2.155. Thanks to a mix of abundant inventories and underwhelming demand as traders continue to await cold winter weather, November natural gas fell 10.4 cents to settle at $3.43 per thousand cubic feet. Gas traded from $3.44 to $3.53.

Courtesy of  Rigzone.Com

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Commodity Corner: Crude Oil, Natural Gas, Gasoline Down for the Week

A stronger dollar, spurred by indications that the Federal Reserve plans to buy more U.S. government debt, placed downward pressure on crude oil Friday. Oil for November delivery fell $1.44 to settle at $81.25 per barrel. The euro, meanwhile, was down 0.8% against the dollar; a weaker dollar typically makes oil, priced in dollars, more attractive to buyers holding other currencies.

Boosting the greenback were comments Friday from Federal Reserve Chairman Ben Bernanke, who said Friday that the Fed was prepared to take additional measures to combat high unemployment and the threat of deflation. Under this "quantitative easing" process, the Fed would try to stimulate the economy by printing more money to buy debt. By increasing the money supply, the central bank hopes the measures would make borrowing cheaper for consumers and thus encourage Americans to spend more. Crude oil traded from $81.22 to $83.33 Friday, and it is down 1.2% for the week.

The November natural gas futures price, already buffeted in recent weeks by mild weather and abundant inventories, settled at $3.535 per thousand cubic feet Friday. The intraday trading range for gas was $3.55 to $3.68 Friday, and the commodity's settlement price fell 1.8% during the week. The front month price for gasoline declined four cents Friday to settle at $2.10 a gallon. November gasoline traded from $2.11 to $2.15, and it is down 3.2% for the week.

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Commodity Corner: Rallies All Around

November crude oil finished higher for the first time this week Wednesday, gaining 1.6% on news that China's appetite for crude oil increased in September. The price of a barrel of crude oil rose $1.34 to settle at $83.01 after China's General Administration of Customs announced the country's crude oil imports increased by 11% last month compared to its purchases in August.

Also providing momentum for oil was the International Energy Agency (IEA), which increased its global oil demand forecast by 300,000 barrels per day through 2011. Now, the IEA forecasts global oil demand to reach 86.9 million b/d for 2010 and 88.2 million b/d for 2011. Oil traded within a range from $81.68 to $83.45 Wednesday.

Natural gas, which has endured a slump recently on mild weather forecasts, rose 1.9% Wednesday as a result of profit taking by traders as well as the sentiment that prices have bottomed out. November natural gas settled seven cents higher at $3.70 per thousand cubic feet after trading from $3.63 to $3.78. The price of a gallon of gasoline increased by 2.4% Wednesday. The front month price settled a nickel higher to end the day at $2.17. It fluctuated between $2.12 and $2.17.

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Commodity Corner: Crude Oil, Gasoline End the Week Higher

French labor troubles helped November crude oil to settle higher Friday. Crude oil for November delivery settled at $82.66 a barrel, a 99 cent gain from Thursday, as traders considered the increasing fallout from an ongoing strike at the Fos-Lavera oil and gas terminal near Marseille. The third-largest oil port in the world, Fos-Lavera is the key entry point for crude oil destined for half of France's refineries as well as other European refineries. For nearly two weeks, striking workers have prevented oil tankers from entering the port. With refinery utilization already low in a number of European refineries, a prolonged strike at Fos-Lavera could lead to refinery shutdowns.

The Fos-Lavera matter, coupled with a strong euro compared to the dollar, proved to have a greater influence on Friday's oil futures price than unimpressive September jobless figures from the U.S. Labor Department. The federal agency reported Friday that nonfarm payroll employment fell by 95,000 jobs last month and that the unemployment rate remained at 9.6 percent during that period. Oil traded from $80.30 to $83.13, and it ended the week 1.5 percent higher.

Natural gas futures, which plunged by more than six percent Thursday, regained some momentum Friday. November natural gas settled three cents higher to end the day at $3.65 per thousand cubic feet. The front month gas price, which has declined with recent mild weather forecasts, fluctuated between $3.58 and 3.68 Friday. Compared to Monday's $3.73 settlement price, gas is down 2.1 percent for the week. The price of a gallon of gasoline rose by three cents Friday, settling at $2.15. The intraday range for gasoline was $2.09 to $2.16, and the commodity ended the week up 2.9 percent.

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Commodity Corner: Crude Rally Ends on Dollar Rebound

Crude oil futures plunged $1.56 Thursday as a stronger dollar and higher natural gas inventories caused energy prices to stagnate. Oil prices have recently been supported by the dollar euro connection a weaker dollar means an increase in crude prices. When the dollar weakens, dollar based commodities become cheaper for traders with foreign currencies. Rebounding from an 8 month low, the greenback rose against the euro sending crude prices lower Thursday.

Light, sweet crude settled at $81.67 a barrel on the New York Mercantile Exchange Thursday, after peaking at $84.43 and plummeting to $81.00. According to the Energy Information Administration (EIA) on Wednesday, U.S. crude inventories rose to 360.9 million barrels for the week ended Oct. 1-13 percent higher than the five year average for the period. The EIA also reported a 6.4 percent drop in fuel consumption, the highest decline since Feb. 27, 2004. Analysts deem the oversupply in crude quite bearish.

Henry Hub natural gas for November delivery fell to its lowest since Sept. 2009, settling at $3.62 per thousand cubic feet. The 25 cent drop came on reports of record level storage builds.
Natural gas inventories increased by 85 billion cubic feet to 3.499 trillion cubic feet last week, as reported by the EIA on Thursday. Gas in U.S. storage hit an all time high in November 2009 at 3.837 trillion cubic feet. Natural gas fell to a 52 week low of $3.61 during Thursday's trading session and peaked at $3.89. Front month contract RBOB gasoline also settled four cents lower at $2.12 a gallon Thursday, after trading between $2.105 and $2.20.

Courtesy of  Rigzone.Com

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Commodity Corner: Crude Oil Gets Boost from Gasoline Data

November crude oil futures benefited Wednesday from an unexpected decline in U.S. gasoline inventories last week, along with a weaker dollar. Oil settled at $83.23 a barrel, a 41 cent improvement from Tuesday, after the U.S. Department of Energy announced that total gasoline stocks declined to 219.9 million barrels as of October 1.

The latest figure represents a 1.2% decline from the previous week. The euro, meanwhile, gained 0.723% against the dollar to an exchange rate of US$1.3936 Wednesday. Since September 8, the euro has rallied nearly 9% against the greenback. A weaker dollar relative to the euro typically places upward pressure on oil prices.

The crude oil futures price peaked at $84.09 and bottomed out at $82.29. Given the Energy Department's report on the refined product, gasoline for November delivery also ended the day higher Wednesday. Gasoline rose three cents to settle at $2.16 a gallon after trading from $2.11 to $2.165. Colder temperatures are not expected to set in until later in the season, a prediction that natural gas traders have been quite aware of lately as prices have been low in recent weeks.

Nevertheless, gas futures settled at $3.865 per thousand cubic feet Wednesday, a 3.3% increase from the previous day. The bullish sentiment for gas stems from speculation that the Energy Information Administration would announce a decline in natural gas inventories in a weekly report Thursday. The front-month price for natural gas fluctuated from $3.75 to $3.88.


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Crude Oil and Gas Reserves Rise Despite Decline in Investment

Total hydrocarbon reserves worldwide increased for the first time since 2005 despite a decline in worldwide upstream investment and development spending. Worldwide upstream investment declined by 23 percent to $378 billion in 2009 among 224 oil and gas companies surveyed, but total worldwide total hydrocarbon reserves grew three percent, according to IHS Herold's report 2010 Global Upstream Performance Review. Production also increased one percent, driven by a 2.2 percent increase in natural gas output. Development spending declined by nearly 20 percent, the first decline in a decade.

"We were very surprised at the strength of reserve additions given the weak economic conditions and tightness in credit markets during 2009," said Nicholas D. Cacchione, director of IHS Herold and author of the report. Oil reserves reversed a two year decline, rising three percent to 164 billion barrels, mostly due to extensions and discoveries in the Canadian oil sands that added 8.6 billion barrels in positive reserve additions. A record 7.9 billion barrels also was added in the South and Central American regions also added a record 7.9 billion barrels.

Natural gas reserves climbed 3.7 percent despite a record 11.4 Tcf in negative reserve revisions, as development of unconventional plays in North America and liquefied natural gas resources in Asia accelerated. The decline in capital spending resulted from a 40 percent reduction by exploration and production companies, while the integrated oil companies cut investment by just nine percent. Exploration spending was most resilient, dropping just 12 percent to $62.7 billion. Unproved acquisition costs were down 71 percent, and a two percent dip in proved acquisition outlays would have fallen 50 percent were it not for the $20 billion Suncor/Petro-Canada merger.

Lower capital spending and higher reserves resulted in a near 50 percent decrease in reserve replacement costs, to $11.41/barrel of oil equivalent (BOE), and lowered finding and development costs to $12.23/BOE. Strong natural gas reserve additions led reserve replacement rates to the highest levels in five years.....Read the entire article.


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Commodity Corner: A Banner Week for Crude Oil and Gasoline

Thanks to a weaker dollar and positive Chinese manufacturing news, the front month crude oil contract price surged to its highest point in nearly two months.

The price of a barrel of crude settled at $81.58, a $1.61 gain from the previous day. The greenback continued its slide against the euro, making oil a better value for traders. Also, an important indicator of China's manufacturing growth, supported oil. The China Federation of Logistics and Purchasing reported a 4.1% increase in its Purchasing Managers Index (PMI) from August to September. In the U.S., however, the Institute for Supply Management's own PMI experienced a 1.9 percentage point drop to 54.4 during the same period. According to ISM, the manufacturing sector and the overall economy continue to grow but at slower rates.

The intraday range for oil Friday was $79.70 to $81.47. Oil ended the week up 6.6%.

Natural gas prices, meanwhile declined as a result of a mild weather forecast and abundant inventories. November gas futures fell seven cents to settle at $3.80 per thousand cubic feet. Natural gas, which traded from $3.79 to $3.87 Friday, is unchanged for the week.

Gasoline for November delivery capped off an impressive week by settling at $2.09 a gallon, a five cent improvement from Thursday. The front month gasoline price traded from $2.03 to $2.09, and it ended the week up 7.2%.

Courtesy of the Rigzone Staff

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The Chinese are Rockin....Repsol to Sell Brazil Assets to Sinopec for $7.1 Billion

In one of the largest Chinese oil acquisitions to date, Spain's Repsol Friday announced the sale of 40% of its Brazilian assets to China Petrochemical Corp., or Sinopec Group, for $7.1 billion. The joint venture, valued at $17.8 billion overall, guarantees Repsol key funding to explore vast and coveted offshore oil fields in South America's biggest economy.

The transaction is also another sign of China's growing prominence on the international energy scene, as it expands its access and ownership of raw materials needed to back the country's economic expansion. The biggest oil takeover by a Chinese firm to date has been Sinopec Group's $7.2 billion acquisition in 2009 of Addax Petroleum Corp., based in Switzerland, only slightly more than the venture announced Friday.

The joint Brazilian operation stands as one of Latin America's largest foreign controlled energy ventures, as it will develop some of the world's most important exploratory discoveries in recent years, Repsol said in a filing with the stock market regulator. Repsol will have controlling interest in the joint venture with a 60% share. At the center of the deal is Repsol's holdings in the coveted subsalt area offshore Brazil, which had been anticipated to constitute a long term cashcow for the Spanish oil giant.

The subsalt play is exceptionally expensive because the oil is found in water depths of more than 2,000 meters and several thousand meters further under the sea bed below layers of sand, rocks and salt. Repsol has said previously that bringing its Brazilian subsalt oil finds into production could cost between $10 billion and $18 billion. Friday's deal eliminates the need for an initial public offering of its Brazilian stake they company had contemplated, Repsol said. "With this new investment, Repsol Brasil is fully.....Read the entire article.


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Musings: Marcellus Shale....Good News Critique

In the last issue of the Musings, we wrote about good news and bad news for the development of the Marcellus gas shale deposit extending across New York, Pennsylvania, West Virginia and eastern Ohio. This deposit with its multiple shales is considered to be potentially the largest gas deposit in the United States. It’s economics are challenging as the area is hilly, the road access is less than ideal, the land holdings are fractured and the public is not necessarily enamored with oil and gas drilling activities, especially hydraulic fracturing, which is key to the successful development of gas shale deposits. Low natural gas prices are potentially the biggest hurdle for Marcellus gas profitability.

Our article discussed the recently released 12 month natural gas production data for wells in the Pennsylvania portion of the Marcellus through June. The data showed average cumulative production for Marcellus horizontal wells in the 5 county core area of the North Central and Northeast part of Pennsylvania. The new data shows solid production results, and in fact, the average well’s production slightly exceeded the expected production suggested by Chesapeake Energy (CHK-NYSE) in a 2008 investor presentation. That chart was presented to show the company’s anticipated well economics for its foray into the region. Pennsylvania has a long history of oil and gas having been the cradle of the U.S. oil business with.....Read the entire article.

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Commodity Corner: Crude Oil, Natural Gas End the Week Higher

A positive change in a German business indicator helped to bolster the euro against the dollar Friday, which in turn gave crude oil a nice bump to end the week.

The price of a barrel of oil for November delivery settled at $76.49 a barrel, a $1.31 improvement from Thursday, after the Munich based IFO Institute for Economic Research announced a slight improvement in Germany's business climate for September. Using 100 as the seasonally adjusted benchmark, IFO reported a business climate index of 106.8 for September 2010. In comparison, the figures for the preceding month and September 2009 were 106.7 and 91.3, respectively. The IFO Business Survey revealed that manufacturing firms remain encouraged by export opportunities. However, they expect the pace of the export market to slow down six months out.

Oil also benefited from rallying equities markets. The Dow Jones was up 1.86% as of 4 p.m. Friday while the S&P 500 and Nasdaq were up 2.12% and 2.33%, respectively. The intraday range for crude was $74.66 to $76.64, and oil ended the week up 2.2%.

The diminishing likelihood that Tropical Storm Matthew will affect oil and gas infrastructure in the Gulf of Mexico placed downward pressure on natural gas prices, which lost 14 cents Friday to settle at $3.88 per thousand cubic feet. Nevertheless, October natural gas ended the week 1.5% higher compared to the settlement price last Monday. Natural gas traded from $3.87 to $4.04 on Friday.

Gasoline for October delivery settled three cents higher at $1.95 a gallon. The front month contract price fluctuated between $1.91 and $1.96. For the week, gasoline remained flat.

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Commodity Corner: Pipeline Outage Continues, But Oil Ends Lower

October oil futures edged lower Tuesday despite fears of a prolonged shutdown of a key Enbridge pipeline that carries crude oil from Canada to the U.S.

Crude prices settled at $76.80 a barrel, a 39 cent decrease from the previous day's trading session. The continued shutdown of Line 6A of Enbridge's Lakehead System near Chicago is providing support for oil prices. Line 6A, which can carry up to 670,000 barrels a day from Canada to the upper Midwest, will not be allowed to restart until U.S. government regulators deem it safe. Already causing a sharp increase in gas prices across the region, investors fear the supply disruption could begin to drain U.S. oil inventories.

Additionally, sluggish economic growth in Germany applied downward pressure to crude futures. A survey revealed lower than expected German investor sentiment, and industrial production in the euro area was flat in July, according to EU's statistics office. Analysts suggest that despite China's booming economy, mixed economic conditions in the U.S. and Europe have kept price increases in check.

The intraday range for October crude was $76.21 to $77.99 a barrel.

Meanwhile, natural gas for October delivery rose 2.8 cents Tuesday to settle at $3.97 per thousand cubic feet. The third price increase in as many trading days supports speculation that the days of lower natural gas futures may have passed for the season. However, some analysts are being cautious and are not declaring a seasonal rally yet. Gas prices were threatened earlier Tuesday on forecasts of storm clusters forming in the Gulf of Mexico, but no immediate storm threats have been seen, steering clear of production outages. Natural gas
fluctuated between $3.84 and $4.02 Tuesday.

RBOB gasoline settled lower at $1.97 a gallon, peaking at $2.00 and bottoming out at $1.96.

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Commodity Corner: Oil Gets Boost from China, Pipeline Closure

From the Rigzone staff....

The October crude oil futures price increased by nearly 1% Monday on news about China's industrial production growth rate.

Oil settled at $77.19 a barrel, a 74-cent increased from Friday, after the National Bureau of Statistics of China reported the country's August 2010 industrial production rate was 13.9% higher than the comparable figure for August 2009. Broken down by various sectors, the government agency reported year on year increases of 12.9% in raw chemical material and chemical product manufacturing; 20.1% in transport equipment manufacturing; and 14.9% in the production and supply of electricity, gas, and water.

Also supporting the oil futures price Monday was the ongoing closure of a key segment of Enbridge's Lakehead System near Chicago following a leak reported last Thursday. Enbridge announced Monday that it had recovered all but approximately 50 of the 6,100 barrels of crude that had leaked from the pipeline. The company had no current estimate of when it might restart the line, but it was working with shippers to divert crude oil volumes to other available pipelines and storage facilities.

Oil traded within a range from $76.36 to $78.04 Monday.

A suddenly active Atlantic hurricane season, and the possibility that energy infrastructure in the Gulf of Mexico will be in the path of a tropical system, helped to nudge the natural gas price toward $4.00 Monday. Gas for October delivery settled at $3.94 per thousand cubic feet, a six-cent gain from Friday, with the existence of three systems circulating in the tropics. In the west-central Caribbean, a broad, poorly organized low-pressure system was moving west-northwestward Monday afternoon. The National Hurricane Center was giving the system a medium chance (40%) of developing into a tropical cyclone by Wednesday afternoon.

Out in the mid-Atlantic, Hurricane Igor was packing maximum sustained winds of 150 miles per hour late Monday morning. Forecasters were expecting the storm to follow a northwestward track and become centered approximately 500 miles northeast of the Lesser Antilles by Thursday morning. Another system, Tropical Storm Julia, was churning near the Cape Verde Islands Monday afternoon and moving in a west-northwestward direction at 13 miles per hour. Thanks in part to shearing conditions produced by Igor, forecast models anticipate that Julia will become a low end hurricane and then weaken into a tropical storm.

The October natural gas futures price fluctuated from $3.80 to $3.97. Gasoline futures increased by a penny to settle at $1.98 a gallon Monday. The intraday range for gasoline was $1.97 to $2.01.

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OPEC Is Swimming In New Petro Dollars

OPEC's oil revenue is surging, again, and is set to continue growing through 2011 according to the U.S. Energy Information Administration. 2010 oil revenue is likely to be a cool $181 billion higher than that seen in 2009, which makes for a pretty nice rebound.

Rigzone:
Last year, OPEC revenue plummeted to its lowest since 2005, when total revenue exceeded $500B for the first time. EIA forecasts that OPEC members could earn $752B of net oil export revenues in 2010, and with expectations of a slightly higher average in 2011 oil prices, to earn $821B in 2011.

It might take a few years for OPEC to beat 2008's peak oil revenue, but future revenue forecasts could change dramatically should oil prices end up far higher than currently forecast.

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OPEC: No Need to Increase Supply

The Organization of Petroleum Exporting Countries said Wednesday it wouldn't need to boost its supply after cutting demand forecasts for its crude and boosting supply estimates for rival producers, despite the impact of a U.S. oil spill. In its monthly report for June, the organization also warned of likely downgrades in global consumption estimates in the second half, and slightly cut its annual forecast amid a slowing recovery.

OPEC cut 2010 demand estimates for its crude by 70,000 barrels a day and now sees a year on year decline of 175,000 barrels a day. "This would leave no room for additional crude oil supplies in the market," it said. OPEC's next meeting is not due until October. The organization, which members currently produce over a third of the oil consumed worldwide, is loosing market share to non members, which include Russia and the U.S.

It boosted non OPEC oil supply estimates by 110,000 barrels a day for 2010, making it an increase of 640,000 barrels a day. The largest upgrade came from U.S. supply, despite OPEC warning production there could be affected by an extension of a Gulf of Mexico drilling moratorium and a hurricane season expected to be worse than usual. The moratorium, which follows an explosion and a huge spill at BP's Macondo well on Apr. 20, is affecting 35 wells "which will have a heavy influence on production in 2010 and 2011," OPEC said.

The group also warned "an expected moderation in the pace of the economic recovery is likely to impact demand growth forecasts for the second half." It cut its global oil demand forecast for the year by about 10,000 barrels a day to 85.37 million barrels a day, but kept consumption growth unchanged at about 950,000 barrels. Despite the challenges they face in finding buyers for every new barrel they produce, OPEC members have been steadily increasing their output in the past twelve months.

In May, quota bound members increased production by 19,600 barrels a day to 26.83 million barrels a day, despite agreeing to 4.2 million barrels a day in cuts late 2008. Iraq, the only OPEC not subject to quotas, experienced the largest rise in the month, with 121,300 barrels a day.....Read the entire article.

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Bulls Take Charge as Oil Surges Past $86

U.S. crude oil futures surged above $86 as fresh technical buying on a wave of economic optimism helped to lift the energy commodity's price to new heights Monday.
Spurred by encouraging economic data on the domestic front, the price of light, sweet crude oil for May delivery rose for a fifth consecutive session on the NYMEX, settling to $86.62 a barrel, the highest level in 18 months.

Additionally, NYMEX gasoline futures gained on the session to $2.35 a gallon, while natural gas spot prices at the Henry Hub also burned brighter on the commodity exchange at $4.28 Mcf. Today, crude rose alongside equities on positive economic data spotlighting an increase in pending home sales. Both markets also bounced on news that the U.S. services sector grew at its fastest pace in nearly four years during the month of March, an ISM report showed.

Oil Price at Full Throttle
Oil prices have gained by more than 8% during the span of a five day rally. "The market's starting to trend pretty nicely for oil," noted Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut. However, given the ample supplies still underlying the crude oil market, this year's record price above $86 is arguably a bit on the high side, according to McGillian. "We really haven't seen any kind of significant increase in fuel demand levels," he underscored.

The analyst continued, "The price keeps pushing up for the same fundamental reasons, and everyone's waiting and watching to see how high it will go before the price has to turn back to a more realistic level." "But right now," McGillian added, "it looks as if the bulls are in charge and not fighting much resistance yet."


Reporter Nancy Agin writes for Rigzone.Com


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U.S. Government Agency Exposes Faults in Key Oil Report

The U.S. government faces "critical" shortcomings in producing its oil inventory data, according to internal Department of Energy documents, casting doubt on figures that affect the production and prices of the world's most important industrial commodity.

The documents, obtained through a Freedom of Information Act request, expose several errors in the Energy Information Agency's weekly oil report, including one in September that was large enough to cause a jump in oil prices, and a litany of problems with its data collection, including the use of ancient technology and out of date methodology, that make it nearly impossible for staff to detect errors. A weak security system also leaves the data open to being hacked or leaked, the documents show.

Moreover, problems with EIA data underscore the hazards of depending on companies or other firms to self report data.

Internal emails and a report from a consulting firm prepared in September describe a process at the EIA that served the oil world well in 1983, the first year that oil futures traded, but hasn't kept up as the inventory data have become more influential and the nation's oil infrastructure has become more complex.

The EIA has been producing the data on oil and fuel inventories since the early 1980s, and the release of the report each Wednesday at 10:30 a.m. is a major event for oil markets. The division collects data from thousands of facilities, all reporting the number of barrels held in storage around the nation. But many of its systems haven't been updated for 30 years, and much of the data input is done manually, according to one report commissioned for the EIA, prepared by consultants SAIC Inc. The consulting group directed questions to the EIA.....Read More


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Volatile Oil Markets Linked to Record Inventories - UH Study

A new academic study from the Bauer College of Business at the University of Houston concludes the unprecedented volatility in the oil markets in late 2008 and early 2009 was predominantly the product of market fundamentals during a time of extreme stress.
The study, An Evaluation of the Performance of Oil Price Benchmarks during the Financial Crisis, was done by Craig Pirrong, Professor of Finance and Energy Markets Director for Global Energy Management Institute, Bauer College of Business at the University of Houston.

It analyzed the behavior of two benchmark oil futures contracts during the period of financial crisis following the collapse of Lehman Brothers. It concluded that futures markets prices generally reflected the realities in the physical market where oil is bought, sold and stored. "The behavior of the WTI futures contract during the financial crisis reflected the truly unprecedented conditions prevalent during that period, which was reflected in market volatility and prices," Pirrong said. The study also found no instances where the prices set in financial markets had gotten out of whack with the most directly related cash markets.....Read the entire article.

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