Possible supply cuts push oil prices up 2.5% for the week

Crude prices posted a weekly gain, boosted by Saudi Arabia’s warning earlier in the week that oil supply cuts may be needed to balance a volatile market.

West Texas Intermediate on the New York Mercantile Exchange rose three out of five trading days, with Tuesday’s $3.38 rise and Wednesday’s $1.15 gain overcoming Thursday’s $2.37 decline. Prices gained 54 cents on Friday to end the week at $93.06, a 2.5% gain from $90.23 at last Friday’s close. The listed price ended at $89.54, according to Plains All American.

“I think we’re seeing the impact of a historic SPR release,” Matt Gallagher, president and CEO of Greenlake Energy, told The Reporter-Telegram by phone as crude futures wobbled between the concerns about supplies and economic downturns. “It hides how tight physical inventories are.”

Travis Thompson, CEO of Firebird Energy, told The Reporter-Telegram via email: “While we continue to monitor commodity prices, we are currently committed to maintaining our level of activity. We have three rigs committed to our position and expect to perform at this level through the end of the year.

Natural gas prices rose on three of five trading days, starting with a jump of 34.4 cents on Monday, but plunging nearly 48 cents on Tuesday that gains of 13.7 cents and 4.5 cents failed to could overcome. Natural gas on the NYMEX fell 8 cents on Friday to close at $9.296 per Mcf, from $9.336 last Friday.

“When you look at prices, you look at two things: market fundamentals and external factors,” Juan Alvarado, senior director, energy analysis at the American Gas Association, told The Reporter-Telegram.

He said market fundamentals do not support current price levels: demand has fallen and supplies are robust, with liquefied natural gas exports steady at 11 billion cubic feet through the summer. Storage levels have been low, but this week saw the highest injection level of the entire season at 44 billion cubic feet, he said.

“We’re not looking for prices to react to supply and demand,” he said. “So we look at the external factors. Investors look at something beyond supply and demand. The big factor is that Russia shuts down the Nord Stream pipeline for three days and then restores supply to 20%, which is not much and it may not come back to 20%.

That pushed European prices up to $80 per Mcf, Alvarado said.

“A lot of what’s happening is that the market doesn’t know what to make of it.”

The direction of gas prices will depend on weather conditions, he said. If the winter is mild, prices will drop. But if there are winter storms similar to Winter Storm Uri that ravaged Texas two years ago, prices could rise even more than current levels.

Traditionally, Alvarado continued, oil and natural gas prices were linked, as natural gas was traditionally associated with crude oil production. That is, he said, until hydraulic fracturing arrives and the production of the two fuels is no longer so closely linked. The northeast’s natural gas production is not tied to crude oil, he noted.

Then there is the transition from using coal for power plants to using natural gas, which has put further upward pressure on natural gas.

“Now the demand for gas is up and it’s not tied to crude production. There has been a decoupling in the market between the two,” he said.

Edward N. Arrington