Oil Companies Win, Natural Gas Companies Lose as U.S. Economy Improves

Oil Companies

Oil Companies‘ prices rose strongly this week, exceeding $100 per barrel for the first time in 2014. The markets closed at $99.88 on Friday. Temporary refinery closings, falling unemployment, and increased use of oil for heating are the main reasons. Meanwhile Natural gas lost business due to high prices.

Starting in February, refineries will temporarily close for repairs and to switch over to making summer blends of gasoline. Stopping gasoline production reduces supply and increases demand. Citgo Petroleum Corp and Motiva Enterprises, LLC began shutdown of their plants in Corpus Christi, Texas, and Convent, Louisiana, respectively this week. Canadian company Nexen is preparing to close its North Sea based Buzzard oil field as well.

U.S. Oil industry profited from an overall improvement in the economy and job market, as the United States added 113,000 jobs. While economists expected jobs to grow by 77,000 than they did, national unemployment still fell from 6.7 percent to 6.6 percent, a five year low. Though the oil prices fell briefly due to the smaller job growth, the drop in unemployment triggered greater equities trading. Lower unemployment translates to more commuters driving to and from work, as well as more discretionary income.

A particularly cold winter across the U.S. increased the household use of central heating. Rising natural gas prices in the northeastern U.S. have prompted utilities companies to instead choose fuel oil for electricity generation in the region. Demand for heating fuel made from crude oil kept oil prices high, yet in demand. At the end of January, stockpiles of fuel including heating oil, fell by 2.4 million barrels.

Brent crude oil, the international oil bench mark, highly influences decisions with regard to the global trend. Analysts reported that Brent crude rose to a 200 day moving average of $107.89, 100 day average of $108.68, and a 50 day average of $108.73. Tariq Zahir, managing member of New York based commodity trading adviser Tyche Capital Advisors stated that trading within the Brent market helped increase overall oil trade.

International oil supplies are also expected to decline in coming months, raising U.S. oil and gasoline prices according to New York based broker Peter Donavan. The head of Libya’s national oil company announced that his country’s output declined from 600,000 barrels a day last week to approximately 475,000 barrels a day this week. North Sea production will likewise shrink production from 1.03 million barrels a day to 890,000.

While the oil and gasoline industry enjoys an a boon, natural gas suffers downturn. The price fell by three percent, to $4.78 per 1,000 cubic feet, culminating in a five percent decline over the last two days. Weather forecasts predict warmer temperature. This is most relevant in the Midwest and Northeast, which suffered the most from recent cold fronts. As the temperatures rise, the need for natural gas central heating will decline further autumn.

Oil companies revenue has risen in direct response to greater amounts of driving, temporary production stoppages, and higher costs of other kinds of fuel. If oil and gasoline companies can smoothly transition from winter to summer production while natural gas prices remain high and more Americans return to work, the near future will be profitable.

By Ian Erickson

ABC News

Reuters

WSJ

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