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Tuesday, November 10, 2009

Oil hovers around $80/barrel after Hurricane Ida is downgraded to tropical storm

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This morning crude oil prices have generally held around Monday’s close, with futures last changing hands around $80/barrel. Traders and investors appear to be waiting to see the impact of the reduced production on the US supply situation.


On Monday crude oil prices advanced over 3% to trade back above $80/barrel as hurricane Ida approached the Gulf of Mexico. Ida was subsequently downgraded to a tropical storm as it neared the Gulf Coast, however the weather system was severe enough to cut production by over 30% among the regions off-shore rigs and coastal refineries.


Many of the world’s major producers, including British Petroleum (LSE: BP) , ExxonMobile (NYSE: XON), Chevron (NYSE: CBX) and Anadarko (NYSE: APC) took precautionary measures and curtailed operations to some degree.
Elsewhere according to a report from the Economic Times, the World Bank reportedly cast doubt over the sustainability of the current oil rally in 2010. The World Bank was reported to have forecasted an average oil price below current levels for the coming year, at $75.29. In a presentation on the Russian economy the World Bank said that it doesn’t expect a return to oil price levels before the economic crisis.


Other commentators have raised concerns over the impact higher oil prices will have on the nascent economic recovery. In October OPEC (Organisation of Petroleum Exporting Countries) Secretary General,  Salem el-Badri stated that sustained crude prices in excess of $80 per barrel would not be good for the global recovery.

Last night China announced it has raised retail gasoline and diesel prices. The Chinese National Development and Reform Commission said the price increase was implemented yesterday, the price increased by $70.32 (480 Yuan) per tonne. Similarly last week US gasoline prices ‘at the pump’ hit a high for 2009 although they have since fallen back.

Considering the high levels of US oil and gas inventories and the worst American unemployment rate for 26 years, $80 oil and the subsequent increase in refined fuel prices would imply an imbalance in the oil markets. Investors will undoubtedly remain alert to upcoming developments such as the usual US Department of Energy report which is due tomorrow.


On the London Stock Exchange oil and gas producers were mixed today. Shell (LSE: RDSB) was in the lead with a 1% gain. Fellow supermajor BP (LSE: BP) and Tullow Oil (LSE: TLW) posted small gains. Other FTSE 100 constituents BG Group (LSE: BG) and Cairn Energy (LSE: CNE) declined marginally, while Petrofac (LSE: PFC) was at the bottom of the pile with a 2.4% loss.


Midcaps didn’t show much movement as Heritage Oil (LSE: HOIL) and Dana Petroleum (LSE: DNX) slid marginally, while Dragon Oil (SLE: DGO) was flat. US focused junior Empyrean Energy (AIM: EME) led the sector with a 15% rally after releasing a drilling update from its Riverbend project, where operator Krescent Energy encountered significant gas flares in the Quinn 3H well.


Eastern Europe focused junior Aurelian Oil & Gas (AIM: AUL) and North America focused oil & gas junior Pantheon Resources (AIM: PANR) also were in buying mode, tacking on 4.5% and 3.5% respectively.


Western Europe operating oil and gas company Northern Petroleum (AIM: NOP) headed in the opposite direction, sliding 4%. Kazakhstan operating Max Petroleum (LSE: MXP), Mongolia-focused Petro Matad Ltd (AIM: MATD) and North American based explorer Nighthawk Energy (AIM: HAWK) joined in, declining 3%.


Iraq and Algeria operating Gulf Keystone Petroleum (AIM: GKP) and Atlantic Canada operating oil and gas group Enegi Oil (AIM: ENEG) lost more than 2.5%.

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