Weekly Oil & Gas Market Highlights: May 17, 2012
Deloitte Center for Energy Solutions publication
Key Oil & Gas price indicators for the prior seven days
|Crude oil, USD per bbl||Noon (EDT) on Thursday, 5/17/12||Noon (EDT) on Thursday, 5/10/12|
|Front-Month NYMEX Light, Sweet Crude Oil (“WTI”) Futures||$92.92 (June-2012 Contract)||$97.03 (June-2012 Contract)|
|WTI Cushing Spot||$92.77||$96.97|
|Dated Brent Spot||$109.36||$112.53|
|Natural gas, USD per MMBtu||Noon (EDT) on Thursday, 5/17/12||Noon (EDT) on Thursday, 5/10/12|
|Front-Month NYMEX Henry Hub Futures||$2.53 (June-2012 Contract)||$2.44 (June-2012 Contract)|
|Henry Hub Spot||$2.50||$2.36|
Data sources: Bloomberg; CME Group
Oil & Gas highlights
- NYMEX WTI crude futures for June ended the week down as the market contemplated a Greek exit from the Eurozone and possible default on its debts and bearish fundamentals featuring historic oil inventories and surging OPEC production.
- Crude futures extended their losses last Friday as OPEC said that output from member states had increased by 320,000 barrels per day last month. The political situation in Greece and fears of a potential Greek exit from the euro also weighed heavily on crude futures prices. During the day, the International Energy Agency released its monthly oil report in which the data showed that oil stocks in OECD countries were above the five-year average and total OPEC production was 31.8 MMbbl/d in April. Futures prices fell further along with the broader market on news that J.P. Morgan Chase suffered a $2 billion loss on a financial hedge position. The loss increased concerns that further regulation of financial markets could be in the offing, which might affect the futures market as well. Light sweet crude futures closed at $96.13 per barrel down 2% for the week. The Commodities Futures Trading Commission released data showing that net long positions for NYMEX crude have fallen by 33% over the week ended Tuesday, May 8.
- Over the weekend futures prices faced more downward pressure as Saudi Oil Minister Naimi said on Sunday that the price of Brent should be around $100 per barrel, which if current trends in the Brent/WTI spread continue would indicate a WTI price of somewhere between $80 to $90 per barrel. Naimi stated that current supply is between 1.3 and 1.5 MMbbl/d above demand. OPEC has increased its oil output by 2.2 MMbbl/d over the past six months. While supply is up, demand expectations took a beating as attempts to form a Greek unity government appeared to falter over the weekend. The two major governing parties in the country, PASOK and New Democracy, both received a drubbing at the polls last week leaving them unable to form a governing coalition even if they united together. The political crisis raises the specter of a Greek default on its debts and the country’s possible exit from the Eurozone were it to return to the drachma.
- On Monday, crude tumbled 2% in Asian trading as prospects for a Greek unity government dimmed. With no upside news during the day, futures prices spent most of the rest of the day trading sideways. Market fundamentals are currently bearish for crude with U.S. stockpiles at levels not seen for over twenty years and OPEC production increasing.
- Tuesday, futures struggled to find an upside as a coalition Greek government looks increasingly unlikely to form making another round of elections in June more likely. Finance Ministers from the EU have warned Greece that the country may be expelled from the EU completely if it does not adhere to the terms of the bailout deal. Meanwhile, the market remains muted ahead of the Energy Information Agency’s (EIA) weekly oil stocks report, which many anticipate may show U.S. oil inventories at their highest level for May since the agency began tracking in 1982. Additionally, institutional investors are reconsidering their market positions following J.P. Morgan Chase’s recent losses and many have cut back on oil market trades. Some upside for crude emerged as data showed Germany’s GDP grew in the first quarter, although only by a meager 0.5 percent. France avoided a technical recession (two consecutive quarters of negative growth), but the country’s GDP neither grew or contracted. The uncertainty in Greece has pushed the dollar up versus the euro, which is bearish for crude. Late in the day, the Greek government called for another round of elections in order to build a coalition government.
- In Wednesday trading, crude futures prices finally found support at $92 per barrel as oil reached a six month low of $91.81 before bouncing back in anticipation of another bearish crude build in EIA’s data. The American Petroleum Institute released its weekly report, which showed an increase of 6.6 million barrels in oil stocks. Prices tumbled more than a dollar in Asian trading as markets there processed the overnight news out of Europe that Greek politicians had failed to produce a coalition government, thus forcing another round of elections in early June. EU finance ministers have insisted that they will not renegotiate the terms of their 130 billion euro bailout funds to Greece and that the voters will essentially decide in June whether Greece will remain part of the Eurozone and possibly even its EU membership. India announced that it would target an overall reduction of Iranian crude purchases of 11% at its refineries. India and Western leaders have been working quietly in the background in order to get India into compliance with the upcoming sanctions regime designed to increase pressure on Iran to abandon its nuclear plans. Futures attempted a rally during New York trading, but fell back after meeting resistance at $94 per barrel as EIA announced that crude stocks increased by 2.1 million barrels last week.
- On Thursday, WTI futures climbed ~1% on news that Japan’s economy expanded by an annualized 4.1% in the first quarter above analyst expectations. Crude was just under $94 per barrel on the news. Further buoying the rise in the futures price was the Seaway pipeline reversal, which is scheduled to occur today that will relieve the building supplies at Cushing by bringing them to the U.S. gulf coast. The reversed Seaway pipeline will deliver 150,000 bbl/d and increase in capacity to 400,000 bbl/d by 2013. The reversal is also expected to narrow the Brent/WTI spread. However, futures prices began to fall again as information was leaked that Moody’s was set to downgrade Spanish banks later in the day. Greece was downgraded one notch by Fitch to CCC from B-grade. Further dampening oil prices was news that U.S. consumer confidence fell to the lowest level since January as it decreased 0.1% in April after rising 0.3% in March.
- The EIA reported NYMEX WTI crude futures prices fell $2.36 last week to $96.13 per barrel. Crude stocks climbed 2.1 MMbbl to 381.6 million barrels. Stocks are 11.3 million barrels higher than a year ago.
- The average retail gasoline price fell $0.036 last week to $3.75 a gallon while gasoline stocks fell 2.8 MMbbl to 204.3 million barrels, which is down 1.6 MMbbl from last year.
- The average retail diesel price fell $0.053 to $4.00 a gallon.
- Distillate stocks were down by one million barrels to 119.8 million barrels and down 23.3 million barrels year on year.
Natural Gas highlights
- The EIA reported Henry Hub spot price was up 5.9% over the past week to close at $2.50 per MMBtu. The NYMEX June 2012 natural gas futures contract closed up 15.3 cents (6.2%) to $2.618 per MMBtu. The average temperature in the lower 48 States was 64.1 degrees, 4.4 degrees above the 30-year average and up 2.6 degrees year on year.
- The domestic natural gas supply rose slightly by 0.3%% last week, which is up 3.7% year on year. The natural gas rotary rig count fell 8 rigs to 598 falling below 600 for the first time in ten years. Oil-directed rigs were up by 17 to 1,372.
- Working natural gas in storage rose 61 Bcf to 2,667 Bcf, which is 774 Bcf above the level a year ago.
- Domestic natural gas consumption was down 5.1% percent from the previous week with the power sector falling 10.9% and the residential/commercial sector was down 1.9%. Industrial sector demand was up 1.9%.
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