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Weekly Oil & Gas Market Highlights: December 13, 2012

Deloitte Center for Energy Solutions publication

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Key Oil & Gas Price Indicators

Front Month Futures (August) December 13, 2012 December 6, 2012 % Change
Oil – WTI
(USD per barrel)
$85.89 $86.26 -0.4%
Oil – Brent
(USD per barrel)
$107.91 $107.03 0.8%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.35 $3.67 -8.7%

Data sources: Bloomberg; CME Group

Crude Oil Prices

WTI futures fell marginally this week closing above $85 per barrel. The political turmoil in Italy, “fiscal cliff’ worries in the U.S., and a surprise build-up in liquids stocks marginally outweighed the upward price pressure of rising tensions in the Middle East and an expanded bond-buying program in the U.S.

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

  1. Crude futures rose modestly in Asian trading on Friday December 7 as a senior U.S. Treasury official announced that in February the United States would impose payment restrictions on banks in countries that do not support the Iranian oil sanctions exemption. In Cairo, Egypt, thousands of citizens held demonstrations against the new powers claimed by President Mohammad Morsi. Despite reports that indicated Morsi had abandoned the Presidential palace, Egyptian tanks were deployed outside the building as a precautionary measure. Traders are watching the situation closely since the Suez Canal, which is controlled by Egypt, is a major oil transit route. Futures rose in New York trading as the U.S. Department of Labor released November employment data, which showed that employment rose by 146,000 jobs while the unemployment rate fell from 7.9% to 7.7% over the period. Traders looking for positive economic signs in the U.S. economy began to bid up oil futures following the news. However, prices began falling—and continued to do so for the rest of the day—as it became clear that much of the drop could be attributed to a decline of 350,000 in the size of the labor force as people gave up looking for a job. WTI futures closed down 33 cents at $85.93 per barrel.
  2. Crude futures rose in Asian trading on Monday as China’s General Administration of Customs released monthly data showing that its crude oil imports for November were 5.68 MMbbl/d, up 3% from last year. Crude futures fell in European trading, however, over concerns about a leadership change in Italy. Italian Prime Minister Mario Monti, who has enacted an austerity budget in Italy, announced that he would resign, after Silvio Berlusconi’s People of Freedom party withdrew support from the government. Berlusconi announced that he would run for Prime Minister in the February election on an anti-austerity budget. Futures prices also came under pressure during New York trading over concerns about the so-called “fiscal cliff”. President Barack Obama and Speaker Boehner met privately over the weekend, but no results from that meeting have been announced.
  3. Oil futures rose on Tuesday as the ZEW Center for European Economic Research released data showing that German investor confidence rose from -15.7 in November to 6.9 in December, the first time the indicator has been in positive territory since May 2012. The market largely shrugged off OPEC’s latest Monthly Oil Market Report released on Tuesday, which revised slightly downward the organization’s forecast for 2012 global GDP growth from 3.1% to 3.0%. Other indicators were left unchanged with 2013 global GDP growth estimated at 3.2% and 2013 world oil demand growth at 800,000 bbl/d. Futures prices fell by over a dollar during U.S. trading as the U.S. Department of Energy’s Energy Information Administration (EIA) released its Short Term Energy Outlook for December, which lowered the forecast for fourth-quarter WTI prices from $89.50 per barrel to $88.51 per barrel. EIA’s gasoline price forecast was down 4 cents to $3.52 per gallon.
  4. Crude futures rose slightly on Wednesday as OPEC announced that it would keep production steady at 30 MMbbl/d. The organization has been exceeding its official production quota, but the latest data reveals that the excess production shrunk by a little over 200,000 bbl/d to 800,000 bbl/d, indicating a slight tightening of the global supply/demand balance. A report from the International Energy Agency (IEA) also provided some upside to the oil price as the organization increased its 2013 forecast for oil demand by 110,000 bbl/d to 90.5 MMbbl/d. Futures prices began falling during New York trading, however, as the EIA released data showing a surprise build in oil stocks, which rose by 800,000 bbl to 373 MMbbl. Analysts had expected to see a decline over the period. Gasoline stocks also increased by 5 MMbbl to 217 MMbbl, well above analyst expectations. The surprise build renewed concerns about the ailing economy, which sent futures prices falling. Prices rebounded later in the day as the Federal Open Market Committee (FOMC) announced an expanded program of easing until the U.S. unemployment hits 6.5%. The FOMC said that its third wave of quantitative easing (QE3) would increase by 12.5% from $40 billion per month to $45 billion per month. The news sent the dollar lower in international markets, which is bullish for crude prices. Later in the day, futures prices began falling again as traders remained concerned about whether a deal would materialize in the budget negotiations between the White House and Congress.
  5. On Thursday, crude futures stayed largely range-bound during Asian trading as investors remained concerned about the budget negotiations in the U.S. and their potential impact on demand in the world’s largest oil consuming nation. However, tensions in the Middle East helped to keep a floor under prices as government forces in Syria fired short-range unguided Scud missiles at rebel fighters in the country. The U.S. and NATO noted the act as an escalation of the conflict. Over 100 nations, including the U.S., recognized Syria’s opposition—known as the Syrian National Coalition (SNC)—on Wednesday, which helped pave the way for the SNC to be declared a government-in-exile. Futures prices began rising as the Department of Labor reported that new jobless claims fell 29,000 to 343,000 last week. The Department of Commerce reported that retail sales in the U.S. increased by 0.3% in November, compared to a 0.3% decline in October. However, analysts had expected a larger rise in the figure. WTI crude futures closed at $85.89, down 1%.

Natural Gas Prices

U.S. Henry Hub futures fell more than $0.30 per MMBtu this week due to mild weather forecasts and a surprise inventory build-up. Although weather forecasters predict cooler temperatures later in the month, traders are cautious due to high inventory levels and rising production despite a falling gas rig count.

Closing price; December futures expired on November 28.
Note: Intra-day prices (every 6 hours)
Data source: Bloomberg

  1. Natural gas futures fell last Friday as traders turned pessimistic about cooler temperatures driving demand. The National Weather Services’ (NWS) 6–10 day forecast highlighted above-average temperatures in key power demand centers of the U.S., including the East Coast and Central U.S. The 8–14 day forecast is similarly bearish with mild temperatures persisting in these regions. Analysts are concerned that mild temperatures could limit the size of natural gas withdrawals over the next few weeks, which is bearish for natural gas prices.
  2. On Monday, natural gas futures fell more than 2.5%, closing down 9.1 cents at $3.46 per MMBtu as the revised forecast from the NWS offered little prospect of cooler temperatures advancing across key heating demand regions. Above-average temperatures are expected to continue across much of the Northeast and Central U.S. in the 8–14 day forecast.
  3. Natural gas futures rose during overnight trading on Tuesday as investors bought into the dip in prices. However, prices began tumbling during the day on concerns about gas inventories, currently at 3,804 Bcf, coming off a historic high of 3,929 Bcf. Inventories are 33 Bcf lower than the same period last year after a large withdrawal of 73 Bcf last week, but the figure is 168 Bcf above the five-year average. Natural gas futures have fallen 13% from the 12-month high of $3.903 per MMBtu reached on November 21. Futures prices closed down nearly 1.5% at $3.412 per MMBtu.
  4. On Wednesday, natural gas futures extended their losses for a fifth straight day as bulls stayed on the sidelines waiting for colder weather to emerge in key weather forecasts. Traders are eyeing current warmer-than-expected weather forecasts, storage at highs for this time of year, and growing production of associated gas. However, some traders believe that the market is currently oversold. Accuweather forecasts predict that temperatures will begin to fall below average just around the Christmas holiday, which may help boost demand during the holidays.
  5. On Thursday, natural gas futures fell following the release of EIA’s weekly natural gas report, which showed a bearish build of natural gas in storage of 2 Bcf over the past week. The build was within analyst expectations, but a net injection for this time of year compared bearishly with a 79 Bcf draw during the same week last year and against an average 113 Bcf draw over the past five years. According to the EIA, temperatures during the reporting period were 8.4 degrees warmer than the same time last year and 9.3 degrees above the 30-year average. High temperatures are a concern since around half of the U.S. households use natural gas for heating and many others use electricity derived from natural gas. Natural gas futures fell 1% and closed at $3.347 per MMBtu.

Futures Curve

August 2013 futures of WTI is 4% higher than current prices, reflecting average cost of carry, limited upside in demand, and adequate supply. However, August 2013 natural gas futures premium widened to 7% due to the recent fall in near-month (January and February) delivery prices.

Data source: Factset

Weekly U.S. Crude Oil and Natural Gas Data

Crude Oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.37 15.42 -0.32%
Gasoline Demand (MMBPD) 8.48 8.35 1.56%
Distillate Demand (MMBPD) 3.50 3.54 -1.13%
Production (MMBPD) 6.85 6.81 0.59%
Imports (MMBPD) 8.49 8.23 3.16%
Stocks (million barrels) 372.6 371.8 0.22%
Rotary Rig Count 1,382 1,386 -0.29%
Natural Gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,806 3,804 0.05%
Rotary Rig Count 417 424 -1.65%
Horizontal Rig Count 1,103 1,110 -0.63%
Consumption (Bcf)* 1,790 (Sep 12) 1,982 (Aug 12) -9.68%
Gross Withdrawals (Bcf)* 2,423 (Sep 12) 2,376 (Aug 12) 1.97%
Canadian Imports (Bcf)* 240.40 (Sep 12) 262.17 (Aug 12) -8.31%
LNG Imports (Bcf)* 11.50 (Sep 12) 19.10 (Aug 12) -39.79%

Notes:
*The EIA does not provide weekly natural gas consumption, withdrawal, and import numbers. Thus, the latest available monthly numbers are reported above.
Data source: U.S. Energy Information Administration (EIA)

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