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Weekly Oil & Gas Market Highlights: February 16, 2012

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators for the prior seven days

Crude oil, USD per bbl Noon (EDT) on Thursday, 2/16/12 Noon (EDT) on Thursday, 2/9/12
Front-Month NYMEX Light, Sweet Crude Oil (“WTI”) Futures $102.34 (March-2012 Contract) $99.83 (March-2012 Contract)
WTI Cushing Spot $102.53 $99.74
Dated Brent Spot $121.61 $118.01
Natural gas, USD per MMBtu Noon (EDT) on Thursday, 2/16/12 Noon (EDT) on Thursday, 2/9/12
Front-Month NYMEX Henry Hub Futures $2.56 (March-2012 Contract) $2.50 (March-2012 Contract)
Henry Hub Spot $2.54 $2.49

Data sources: Bloomberg; CME Group

Oil & Gas highlights

  • NYMEX WTI crude futures for March rose steadily throughout the week to $102.34 in Thursday mid-day trading as a result of optimism for a second Greek bailout, continuing tensions between Iran and the West, and positive U.S. economic news.
  • WTI Crude futures fell during Friday trading as investors sought to lock-in profits realized on the weeks gain in futures prices.  China’s General Administration of Customs reported during the day that China’s imports of crude oil were 5.54 MMbbl/d during the month of January, which is 6.8% higher than last month and 7.4% higher year on year.  However, traders found little upside on the news as concerns about the euro-debt crisis continued to weigh on futures prices ahead of a vote by the Greek parliament on government spending cuts agreed to by Greek Prime Minister Lucas Papademos and opposition party leaders.  Further weighing on trading during the day was the announcement by the International Energy Agency (IEA) that for the sixth straight month it cut its global oil demand growth.  The IEA reduced its estimate for 2012 by 250,000 barrels to 800,000 barrels.  The announcement came a day after OPEC announced a similar 120,000 barrel reduction in oil demand forecasts for 2012 on Thursday.  However, crude prices rallied late in the day as the Greek cabinet approved draft legislation that would implement key reforms requested by the EU and IMF in order to receive additional bailout funds.  The Greek parliament was expected to vote on the measure on Sunday.
  • Monday WTI futures traded higher on news that the Greek parliament had approved the debt reduction package in a tumultuous session.  The measure includes a reduction in the public sector workforce by 150,000 overs three years, a 22% cut in the minimum wage (currently 750 euros or just under $1000 a month), 300 million euros (~$400 million) in pension cuts, reductions in the public health system’s spending on certain medicines while imposing no new taxes on the country’s fragile economy.  Six members of Papademos’ cabinet resigned over the measure.  In a session marked by violent protest outside the parliament in Syntagma square and loud interruptions and objections inside the chamber, the final vote was 199 for the measure, out of 236 members in the governing coalition, versus 101 voting against it.  The news sent the euro rallying versus the dollar further boosting crude prices.  The news sent WTI futures prices rising by over $1.50 and above the $100 mark to $100.30 per barrel.  With regard to Iran, upside was found in a JBC Energy report stating that Iranian crude production had declined by around 250,000 or 6.6% over the past two years with expectations of a further 300,000 barrels decline this year as a result of natural decline rates and a lack of new investment.  However, India’s Foreign Secretary Ranjan Mathai stated last month that India would not go along with the sanctions and China, which is the largest purchaser of Iranian exports (20%), has similarly refused to participate even as its overall import of Iranian crude has declined this year to half of its 2011 levels as a result of contracting and pricing disputes.   China has increased purchases of Saudi crude over the past several months with purchases of around 200,000 bbl/d.  Also, supporting the Western-backed Iranian oil sanctions is news that several shipping companies owning over 100 supertankers announced that they would stop loading oil cargos from Iran.  The announcement is a result of the EU’s January 23rd law that also bans shipping insurance to companies doing business with Iran.  Some 95% of their fleet is insured under European law, so the companies have no choice but to cease doing business with the country.  According to the Energy Information Agency (EIA), Iran earned ~$70 billion in oil sales in 2010, which represented half of all government revenue and 80% of Iran’s total exports.  In late afternoon trading, a technical glitch in the CME Group’s Globex electronic trading system shutdown electronic trading of crude, heating oil. And RBOB gasoline for over an hour.  Natural gas trading was not affected. The closure of electronic trading moved all trading to the Exchange floor via the open-outcry system.  Some traders blamed a $0.50 rise in the crude price on the outage.  Electronic trading resumed again at 3:15 after the CME cancelled all of the “good till date” orders, but allowed traders to reenter them for processing prior to the resumption of trading.  The shutdown caused confusion over what the day’s settlement price was at the close of trading.
  • Tuesday futures’ trading was off to a slow start following Moody’s downgrade of six European countries including Spain, Portugal, Italy, Malta, Slovakia, and Slovenia and warnings to Austria, France and the United Kingdom.  Moody’s has been the last of the three major ratings agencies to act, but their downgrade has been the most severe on Spain and Portugal.  Spain was downgraded two notches and Portugal was downgraded to Ba3 or junk grade as concerns have mounted in recent weeks that Portugal could soon be in a similar situation as Greece is today.  Portugal’s GDP declined 1.3% in the fourth quarter of 2011.  Also, Moody’s is the only ratings agency to put the UK on a credit watch list.  Further weighing on the economic outlook was news that industrial production in the Eurozone declined by 1.1% in December and 2% year on year that month.  However, markets began to surge on news that Germany’s ZEW index, which measures economic expectations in the country, surged to 5.4 from -21.6 in January, the third consecutive monthly rise and the first time the index has been positive since May 2011.  The news sent the euro rapidly rising versus the dollar, which is bullish for dollar-priced crude futures.  Later in the day, economic news out of the U.S., which had been providing a bright spot for the economic outlook, sent the market tumbling again as the Department of Commerce announced that retail sales in January were up only 0.4% only half of analyst expectations.  Late session trading saw crude futures rise again on optimism that a Greek debt deal would be reached with EU leaders on Wednesday.
  • On Wednesday, WTI crude futures traded in a narrow band between $101.50 and $102 per barrel throughout the day.  Citing information from a confidential source at the National Iranian Oil Company (NIOC), Iran’s state-run Mehr news agency that Iran had cut off supplies to six European countries, including economically struggling Greece, sent prices spiking briefly above $102 per barrel.  However, Iranian officials and Italy’s ambassador to Iran quickly squelched the report stating that no such action had taken place.  The state-run Fars news agency said that Iran had merely warned the countries.  A spokesman for NIOC said that any such decision would be announced by Iran’s National Security Council, not NIOC.  Crude futures also received support when the governor of China’s Central Bank said that the country would continue to buy European government debt and maintained confidence in the currency.  The news sent the euro up to ~1.32 versus the dollar, which is bullish for dollar-denominated crude.  About a fourth of China’s foreign reserves are denominated in euros.  EIA’s weekly oil stocks report sent conflicting signals that neither provided much upside or downside to crude futures prices.  According to EIA, U.S. crude inventories fell by 200,000 barrels last week, where analysts had been expecting a rise.  However, the data also showed that stocks at the critical Cushing, OK oil transit point had increased by 2 MMbbl/d.  Gasoline stockpiles also continued their recent increases adding another 400,000 barrels last week even as fuel demand rose 5.9% last week.
  • Thursday, futures prices climbed to a seven week high, with Brent climbing even faster as a result of a scramble by competing Asian and European buyers seeking to displace Iranian crude.  Further pushing up Brent prices was a strike in Yemen  by oilfield workers at PetroMasila.  The strike has shut in some 260,000 barrels of oil bound for the Asian market at Yemen’s Masila oilfield as the country struggle economically with political upheaval and mounting violence.  Crude traded up on speculation that Greece will in fact receive a second bailout from EU leader, which could help to stabilize economic conditions in Europe.  Positive economic news in the U.S. further fueled the climb as new claims for unemployment benefits dropped 13,000 last week to 350,000 and the total number of people collecting jobless benefits dropped by 100,000 to 3.43 million, which is the lowest number since 2008.
    • EIA reported NYMEX crude futures closed up $0.83 last week trading at $98.67 per barrel on February 10 as crude stocks fell by 200,000 barrels to 339.1 million.  Stocks are 6.8 million barrels lower than a year ago.
    • The average retail gasoline price was up $0.04 for the week to $3.52 per gallon.  Prices were up $0.38 year on year.  Gasoline stocks also continued to rise by 400,000 barrels to 232.2 million barrels, which is down 8.9 million barrels year on year.
    • The average retail diesel price was up by $0.087 to $3.943 a gallon, up $0.41 from a year ago.
    • Residential heating oil was up $0.06 last week to $4.03 per gallon, $0.44 higher than a year ago.
    • The retail propane price was down by a tenth of a penny still holding steady at $2.86 per gallon, which is $0.04 higher than a year ago.   Propane stocks dropped 238,000 barrels to 46.4 million barrels.

Natural Gas highlights

  • Henry Hub spot prices increased $0.05 last week from to $2.54 per MMBtu as temperatures fell across much of the country particularly in the North East.  NYMEX March 2012 futures were down 0.023 cents to $2.426.
  • Domestic Natural Gas production was up by 0.2% last week with LNG imports from Canada up 6.0%, but down 21% year on year.  The natural gas rotary rig count declined by 25 rigs to 720, which is down 21% from last year, while the oil rig count increased by 18 to 1,263 up 57% from last year.
  • Working natural gas in storage fell 127 Bcf to 2,761 Bcf, which is 817 Bcf higher than last year and 765 above the 5-year average.
  • Natural Gas consumption rose sharply by 14.3% as a result of cooler temperatures in much of the country with total demand exceeding 100 Bcf Saturday and Sunday with an average demand of 91.7 Bcf during the week.  Residential and Commercial demand saw the most dramatic increase rising 24.9%.  The power sector saw a 12.3% mostly in the Southeast, Texas and the midcontinent while the industrial sector was up 3.7%.

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Deloitte MarketPoint LLC and the Deloitte Center for Energy Solutions have developed an assessment of the potential economic impact of LNG exports from the United States based upon various assumptions. Made in America: The Economic Impact of LNG Exports from the United States summarizes the findings of alternative scenarios regarding U.S. LNG exports and offers related strategic insights.

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