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Weekly Oil & Gas Market Highlights: September 6, 2012

Deloitte Center for Energy Solutions publication

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Key Oil & Gas Price Indicators

Front Month Futures (August) September 6, 2012 August 23, 2012 % Change
Oil – WTI
(USD per barrel)
$95.53 $96.27 -0.8%
Oil – Brent
(USD per barrel)
$113.49 $115.01 -1.3%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$2.78 $2.80 -0.9%

Data sources: Bloomberg; CME Group

Crude Oil Prices

Crude prices were volatile over the past two weeks due to the continuing global economic uncertainty. On the one hand, supply disruptions due to Hurricane Isaac in the U.S. Gulf Coast, anticipation of further financial easing by the Fed, and the news of unlimited bond-buying by the European Central Bank (ECB) boosted the prices. On the other hand, weak economic data from China, Europe, and the U.S. weighed on prices.

Closing price
Note: Intra-day prices (every 6 hours)
Data source: Bloomberg

  1. On Friday August 24, futures fell in Asian trading as traders were pessimistic about the outcome of Greece's bailout talks with Germany later in the day. Futures began rising in New York trading as traders engaged in protective buying ahead of Tropical Storm Isaac, which began to track further westward toward the key oil and gas producing and refining centers in the Gulf of Mexico. Landfall was expected to occur somewhere between the Florida and Louisiana coast.
  2. Futures were up in London trading on Monday as traders continued to monitor Isaac’s progress through the Gulf. Further boosting prices was optimism that the Federal Reserve would announce further easing during the Kansas City Fed’s annual symposium in Jackson Hole later in the week. Futures closed down at $95.47 per barrel due to the closure of 1.3 million bpd of refinery capacity ahead of Isaac’s landfall and speculation that the U.S. is likely to release strategic crude reserves to mitigate supply disruptions due to Isaac.
  3. Prices began climbing on Tuesday as many offshore oil companies began closing production ahead of the arrival of the tropical storm. At 11.20 am central time, the National Hurricane Center officially upgraded Isaac to a hurricane as winds reached 75 miles per hour. Further providing upside to prices, Executive Director of the International Monetary Fund Maria Van der Hoeven reiterated that she did not see the need for a strategic release of oil stocks, due to sufficient supply stockpiles in the world market.
  4. Crude oil futures fell on Wednesday as Hurricane Isaac made landfall near New Orleans. After the close of trading, Isaac was downgraded to a tropical storm. Prices fell as the Energy Information Administration (EIA) announced that oil stocks last week rose by 3.8 MMbbl, surprising market traders, who were expecting a modest drawdown. Stocks of distillates were up ~850,000 barrels, while gasoline stocks fell by 1.5 MMbbl.
  5. Crude oil futures on Thursday held steady ahead of a widely anticipated announcement from Federal Reserve Chairman Ben Bernanke regarding further easing measures. Futures began falling, however, as the U.S. Department of Labor’s (DOL) weekly employment data showed that new claims remained unchanged at 374,000 after an upward revision in last week’s figures, signifying that the economy may be faltering and oil demand may ease as a result. WTI futures closed down at $94.62 per barrel.
  6. Crude oil futures were muted in Asian trading on Friday as market participants awaited Ben Bernanke's announcement from Jackson Hole later in the day. Data from Japan showed that the country’s industrial output was down 1.2% in July, while traders had anticipated a similar-sized rise in output. Futures began rising in London and New York trading on optimism that further easing would be announced by the Fed later in the day. However, Bernanke did not announce any new or immediate measures to stimulate economic development, although he left open the idea that further easing may be needed to bolster the economy. NYMEX crude futures closed up ~2% on Friday at $96.47 per barrel.
  7. On Monday, crude futures fell marginally in Asian trading as China announced that its July Purchasing Manager’s Index (PMI) fell to 47.6 in August from 49.3 in July. The August figure is the lowest level since early March 2009. However, crude futures rose in London trading as stimulus hopes outweighed the weak Chinese data. Overall trading volumes were thin as Monday was a market holiday for New York traders.
  8. On Tuesday, Asian trading pushed crude futures higher amid growing speculation that additional stimulus to spur the Eurozone economy may be announced at a press conference called by ECB President Mario Draghi, scheduled for Thursday. The speculation grew as a result of positive and potentially stimulus-supporting comments from Draghi over the past few days. However, New York traders coming off a long weekend pushed prices down on concerns about the global economy in light of weak economic data from China and the Eurozone. Further pressuring prices was the Institute of Supply Management’s U.S. PMI data showing a decline in August to 49.6 from 49.8 in July, which is the lowest level since July 2009. Futures closed down at $95.30 per barrel. However, continued tensions in the Middle East managed to keep a floor under prices.
  9. Crude futures fell during the first half of Wednesday trading as the PMI for the Eurozone fell to 46.3 in August from 46.5 in July. Germany's August PMI fell to a three-year low of 47.0 from 47.5 in July. However, prices began to trend upward in the second half as the U.S. DOL announced revised second-quarter figures for non-farm business productivity, which showed a 2.2% annual growth rate, up from 1.7% earlier. Uncertainty remained in the market over ECB’s upcoming announcement. Many traders were awaiting the release of EIA’s weekly oil stocks report, which was delayed by one day this week due to the Monday holiday.
  10. On Thursday, oil futures rallied after Mario Draghi announced that the ECB would support growth in the European economy and expected to see renewed economic growth in the Eurozone in 2013. However, although he did not announce the anticipated rate cut, Draghi did state that the ECB would engage in unlimited bond-buying to support European banks. Oil futures rose 2.5% on the news. EIA’s oil stock report showed a ~7.5 MMbbl decline last week, the biggest drawdown in supplies since December 2011, which further boosted the prices. However, futures shed most of their gains during the final hours of trading as traders believed that the inventory drop is a one-time event due to the storm-related delay in oil shipments and production shutdowns in the Gulf Coast. WTI crude oil futures for October pared the gains in earlier sessions to close 0.2% up at $95.53 per barrel.

Natural Gas Prices

Natural gas futures closed almost flat over the past two weeks at $2.78 per MMBtu. Continuing record-high natural gas inventory levels and cooler weather forecasts pulled down prices in the first week. Prices rebounded in the second week on continued outages of natural gas production in the U.S. Gulf Coast due to Hurricane Isaac.

Closing price
Note: Intra-day prices (every 6 hours)
Data source: Bloomberg

  1. On Friday August 24, natural gas futures closed down 10 cents (3.6%) at $2.702 per MMBtu. Traders noted that Isaac may not cause large supply disruptions as much of the natural gas production is onshore (for e.g., shale gas). Further, early forecasts for the path of Tropical Storm Isaac showed a drift toward east of the major gas-drilling areas in the Gulf of Mexico. Traders instead turned to rising inventories and temperature forecasts, predicting moderate temperatures across most parts of the country. Traders expect to see increasing inventory builds as cooler fall temperatures overtake summer heat.
  2. On Monday, natural gas futures opened up as Tropical Storm Isaac's course veered further west toward the country’s natural gas producing regions. The Independence natural gas production platform was shut down on Saturday, taking ~1 Bcf/d of production off the market. Nuclear power plant outages also supported a rise in prices as outages averaged 7,800 MW (8% of U.S. capacity), up from 6,600 MW a year ago. However, prices fell in late afternoon trading over bearish storage and demand concerns.
  3. On Tuesday, natural gas futures ended lower for the fourth continuous day, shrugging off warmer temperatures as traders expected any Gulf of Mexico production closures to be temporary. The National Weather Service's six- and 10-day forecasts called for above-average temperatures across the country, except for the West Coast.
  4. On Wednesday, Hurricane Isaac made landfall 50 miles southwest of New Orleans, but there was no immediate damage to offshore oil and gas production platforms. At the start of the day, ~75% of U.S. natural gas production in the Gulf of Mexico was shut in. Several companies planned flyovers of their facilities later in the day to determine schedules for restarting production. The Gulf of Mexico accounts for ~7% of total U.S. natural gas production. Natural gas futures closed marginally up at $2.634 per MMBtu.
  5. On Thursday, U.S. natural gas futures opened higher as forecasts of warm weather were expected to increase cooling demand. The EIA reported that natural gas in storage rose by 66 Bcf to 3,374 Bcf. Natural gas in storage was 15% higher than the same time last year. Technical traders indicated that the recent run-up was a result of natural gas being oversold and that the downward trend would resume shortly. Futures closed at $2.75 per MMBtu, up 4%.
  6. On Friday, natural gas futures continued their rise on expectations of increased cooling demand and continued outages at key production facilities in the western Gulf of Mexico as a result of Hurricane Isaac. October Henry Hub futures ended the week at $2.799 per MMBtu, up ~2%. Natural gas production was expected to return to normal by early next week. Baker Hughes reported the gas-directed rig count fell to 473 rigs, a 13-year low, down ~50% from last year.
  7. On Monday, natural gas futures were largely unchanged due to the Labor Day holiday.
  8. Natural gas futures rose 2.3% on Tuesday as industrial demand returned following the Labor Day holiday. However, much of the Gulf Coast production put offline by Hurricane Isaac is expected to come back online soon and put pressure on recent price increases. The National Weather Service’s 6-10 day forecast called for moderating temperatures across most parts of the country.
  9. Futures closed down 2% on Wednesday as weather forecasts called for milder temperatures across most parts of the country. Natural gas production platforms in the Gulf began to return online with only ~25% of Gulf production still offline. Some traders believe that continued high nuclear outages may provide support for prices during the "shoulder" season this fall.
  10. On Thursday, futures fell marginally as mild temperatures were predicted for the country. Shut-in production in the Gulf stood at just over 20% as facilities continued to come online after the category 1 hurricane. The EIA reported a rise of 28 Bcf in working gas in storage, which was below analyst expectations. Natural gas futures closed down nearly 1% at $2.776 per MMBtu.

Futures Curve

U.S. Henry Hub natural gas is in “contango” due to the limited storage capacity (current natural gas inventories are ~11% higher than the five-year average). April 2013 natural gas futures are still 20% higher than spot prices, compared to less than 2% for oil.

Data source: Factset

Weekly U.S. Crude Oil and Natural Gas Data

Crude Oil
Indicators This Period* Prior Period* % Change
Refinery Inputs (MMBPD) 14.61 15.44 -5.4%
Gasoline Demand (MMBPD) 9.18 9.08 1.1%
Distillate Demand (MMBPD) 3.22 3.56 -9.6%
Production (MMBPD) 5.49 6.25 -12.2%
Imports (MMBPD) 8.04 8.21 -2.1%
Stocks (million barrels) 357.1 360.7 -1.0%
Rotary Rig Count 1,419 1,425 -0.4%
Natural Gas*
Indicators This Period* Prior Period* % Change
Consumption (Bcf)** 1,847 (Jun 12) 1,852 (May 12) -0.27%
Gross Withdrawals (Bcf)** 2,424 (Jun 12) 2,532 (May 12) -4.27%
Canadian Imports (Bcf)** 250.04 (Jun 12) 240.37 (May 12) 4.02%
LNG Imports (Bcf)** 8.26 (Jun 12) 16.21 (May 12) -49.04%
Working Storage (Bcf) 3,402 3,308 2.8%
Rotary Rig Count 473 484 -2.3%
Horizontal Rig Count 1,149 1,153 -0.4%

Notes:
*The EIA did not release a natural gas report this week due to the U.S. Independence Day holiday. Thus, this period data is for the week ending June 27 and prior period data is for the week ending June 20.
**The EIA does not provide weekly natural gas consumption, withdrawals, and imports numbers. Thus, the latest available monthly numbers are reported above.
Data source: U.S. Energy Information Administration (EIA)

Comments and questions welcomed. Please contact DeloitteCenterforEnergySolutions@deloitte.com

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