Monday July 28, 2014

Oil Prices Soar; Gas Continues Downward Spiral In 2011


Canadian crude oil prices climbed for the third consecutive year in 2011 with prices posted by refiners for light sweet crude up 22.6 per cent to an average of $95.16 per bbl at Edmonton, the highest since the record of $103.07 per bbl set in 2008.

Light crude price posted by Imperial Oil Limited, Flint Hills, Royal Dutch Shell and Suncor Energy Inc. averaged $77.65 per bbl in 2010 and $66.18 a bbl in 2009.

Heavy oil producers also benefitted from higher prices with Flint Hills Lloyd Blend at Hardisty up 14.5 per cent to an average of $76.62 per bbl for the year compared to $66.91 per bbl in 2010, while Imperial Bow River was up nearly 14 per cent to $77.73 per bbl from $68.19 per bbl the previous year.

However, the differential between light and heavy prices also widened in 2011, averaging $18.54 per bbl for Flint Hills Lloyd Blend versus $10.73 per bbl in 2010, a 73 per cent increase, while the difference between Imperial light and heavy prices grew to $17.30 per bbl from $9.83 per bbl the previous year.

In contrast, natural gas prices continued to decline as a result of the "shale gale" in the United States coupled with a weak economy resulting in record levels of gas in storage. AECO prices averaged $3.45 per gigajoule in 2011, off nearly nine per cent from $3.79 per gigajoule in 2010 and 2009. Last year's natural gas price was the lowest since 1999 when the price at AECO averaged $2.77 per gigajoule.

New York Mercantile Exchange (NYMEX) prices averaged US$4.04 per mmBtu for the year, off from $4.39 per mmBtu in 2010 and $4.16 per mmBtu in 2009.

Crude oil prices had a strong finish for the month and the fourth quarter, with Canadian posted prices averaging $98.96 per bbl in December, down from $101.57 per bbl in November, but up 15 per cent from the December 2010 average of $85.83. Light crude averaged $97.35 per bbl in the fourth quarter of 2011, up more than 21 per cent from the 2010 final quarter average of $80.55 per bbl.

December's average price of $89.15 per bbl for Flint Hills Lloyd Blend was up from $88.75 in November and $74.90 per bbl in December 2010. December's monthly average was the highest since September 2008 when Lloyd Blend attracted a price of $105.34 per bbl. The differential of $9.81 per bbl between Canadian light and heavy prices was down 10 per cent from $10.94 per bbl in December 2010 and was also the lowest monthly average last year.

Net Energy implied values for Western Canada Select were an average of $83.73 per bbl in December compared to $85.04 per bbl in November and $76.17 per bbl in October. Syncrude Canada Ltd. implied values also dipped last month to $101.27 per bbl from $102.27 per bbl in November.

In the fourth quarter of 2011, heavy oil prices averaged $84.87 per bbl for Lloyd Blend and $87.93 per bbl for Imperial Bow River compared to $67.46 per bbl and $68.58 per bbl, respectively, in the fourth quarter of 2010. Earlier in the year, the differential had widened due to constraints on crude oil pipelines out of Western Canada.

Global benchmark North Sea Brent Blend averaged $110.95 per bbl in 2011, up nearly 39 per cent from an average of $80.01 per bbl in 2010 and surpassing the previous record of $98.53 per bbl in 2008. Late in the year, a wave of supply concerns capped a year of unrest and disruptions in North Africa and the Middle East that overwhelmed concerns about the economic health of large consuming nations.

Oil price rose more than three per cent today as tension between Iran and the United States kept fears of potential supply disruptions in focus and with Chinese and United States economic data also supportive at the start of 2012 trading.

Iran threatened to take action if the U.S. Navy moves an aircraft carrier into the Gulf, the most aggressive statement yet from Tehran after weeks of saber-rattling as new U.S. and European Union financial sanctions take a toll on Iran's economy.

"The supportive economic data and the geopolitical concerns are furthering the crude oil rally," said John Kilduff, partner at hedge fund Again Capital LLC in New York.

"The temperature is going up every day now on the Iran situation -- new sanctions, new missile launches, and saber rattling are all contributing," he added.

Brent February crude rose $3.37 to $110.75 a bbl by 11:38 a.m. EST, having reached $111.58 a bbl. U.S. February crude rose $3.40 to $102.23 a bbl, having reached $102.88 per bbl.

NYMEX Light WTI (West Texas Intermediate) fetched $94.68 per bbl for the year compared to $79.14 per bbl in 2010 and a record $100.01 per bbl in 2008. WTI prices have typically been comparable to Brent, or slightly higher, but last year WTI prices were discounted in relation to Brent as growing volumes of Canadian and Bakken crude coming into the hub at Cushing, Oklahoma, were unable to access refineries in the Gulf of Mexico due to limited pipeline capacity. The planned reversal of the Seaway Pipeline owned jointly by Enbridge Inc. and Enterprise Energy Partners L.P. could provide transportation capacity for an initial 150,000 bbls per day of light crude as early as the second quarter of this year, reducing some of the bottleneck at Cushing.

The Brent-WTI differential was at its widest in April at $17.82 per bbl with Brent at $123.14 and WTI at $105.32 per bbl.

Meanwhile, U.S. natural gas futures remained near a 28-month spot chart low under $3 per mmBtu at midday despite cold weather in the Northeast this week. Traders said the expected brief cold spell was not enough to offset concerns over record high production and bloated inventories. At 11:54 a.m. EST, front-month February NYMEX natural gas futures were at $2.97 per mmBtu, down 1.5 cents.

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