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Weekly Oil & Gas Market Highlights: November 1, 2012

Deloitte Center for Energy Solutions publication

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Key Oil & Gas Price Indicators

Front Month Futures (August) November 1, 2012 October 25, 2012 % Change
Oil – WTI
(USD per barrel)
$87.09 $86.05 1.21%
Oil – Brent
(USD per barrel)
$108.17 $107.42 -0.29%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.70 $3.43 7.72%

Data sources: Bloomberg; CME Group

Crude Oil Prices

Crude oil futures (WTI) rose more than $1 per barrel this week after falling initially due to refinery slowdowns caused by Hurricane Sandy. Positive economic indicators in the U.S. and China, the restart of refineries on the East Coast, and Greece’s deal with the Troika boosted crude prices. 

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

  1. Last Friday, crude futures softened in Asian trading on account of a strong U.S. dollar and weak unemployment data from Spain. However, futures regained during New York trading as the Department of Commerce released data showing that U.S. GDP grew at 2% in the third quarter, beating analyst expectations. Following the news, prices oscillated between a 20 cent decline and a 30 cent rise. Some traders were optimistic about the higher-than-expected GDP growth, while others were concerned about continued sluggish demand, historically high crude stockpiles for this time of year, and growing oil production, which is at a 15-year high. During the afternoon, traders turned their attention to Hurricane Sandy as it began bearing down on the East Coast. Traders expected gasoline sales to rise ahead of the hurricane’s landfall and then decline thereafter. The major unknown was whether the storm would cause any serious damage to the energy infrastructure in the region, including refineries, pipelines, and ports. NYMEX WTI crude futures closed up 23 cents at $86.28 per barrel.
  2. On Monday, the City of New York issued a mandatory evacuation of low-lying Zone A, which includes the NYMEX trading floor. Electronic trading continued, but volumes were lower than usual.
    During the day, traders registered news of several refinery slowdowns on the East Coast as a result of the storm. The region’s largest refinery at Bayway (~240,000 bbl/d) was shut down on Sunday ahead of the storm. The Trainer refinery in Pennsylvania, however, remained fully operational on Monday. The eight refineries on the East Coast represent 6.5% of U.S. refining capacity. As a result, crude prices fell and refined products’ prices increased. Gasoline futures rose over 4% on Monday as refineries began to close operations ahead of the storm’s arrival. Traders braced themselves for news of damages to the energy infrastructure in the region and large power outages that might delay refinery restarts. WTI futures for December delivery closed at $85.54 per barrel, down nearly 1% from the day’s opening price.
  3. On Tuesday, WTI futures showed little change in Asian and European trading on account of refinery slowdowns in the U.S. East Coast due to Hurricane Sandy. Trading volumes were low as the NYMEX floor remained closed. Lower Manhattan was without power and roads were closed along much of the East Coast. The market waited for news of the outcome of the storm.
    In New York trading—conducted electronically—gasoline futures fell 5.18 cents (~2%) to $2.71 per gallon, while WTI futures rose above $86 per barrel, reversing Monday’s trend as refineries began to come back online and gasoline demand lagged. Refinery restarts provided the market with assurance that little damage had been done to the refining capacity in the region. However, two refineries in New Jersey, accounting for ~310,000 bbl/d of combined refining capacity, remained offline due to power outages. A fire erupted at a Texas City refinery and raged on for a little over an hour before it was extinguished. The fire caused the closure of a residual hydrotreater, but other operations in the refinery complex remained unaffected. Crude futures closed at $85.68 per barrel.
  4. On Wednesday, crude futures rose during European trading as the euro strengthened on news that the Troika and the Greek government were close to agreeing on a deal that would give Greece two additional years to meet its financial targets. The news sent the euro up versus the dollar, which is bullish for crude prices. In the gasoline market, gasoline futures traded nearly 8% higher as some traders were caught in a “short squeeze” where those holding short positions were forced to purchase contracts ahead of Wednesday’s expiration of the November contract.
  5. Oil futures rose during Asian trading on Thursday as China’s National Bureau of Statistics announced that the country’s purchasing manager’s index (PMI) rose to 50.2—one of the first signs of economic expansion in the country since July of this year. The news indicated that China, which is expected to account for half of the global oil demand growth, is emerging from the economic slowdown. On the East Coast, refineries continued to come back online throughout the region. ~75% of total refinery capacity had returned to production on Thursday, helping to boost crude demand and prices. Futures rose sharply as the Energy Information Administration (EIA) released its weekly oil stocks data showing that crude inventory stocks fell by 2.05 MMbbl last week to 373.1 MMbbl. The market had anticipated an increase in oil stocks of just under 2 MMbbl. Crude oil production was also up, reaching 6.67 MMbbl/d, while imports fell to 7.92 MMbbl, a 10% drop. Also supporting the rise in prices was a series of positive economic indicators in the U.S. The Institute for Supply Management’s factory index rose to 51.7 last month from 51.5 in September. The Conference Board reported that U.S. consumer confidence increased to 72.2 in October, the highest level since 2008. The Department of Labor on Thursday reported that applications for jobless benefits fell by 9,000 (~2.5%) to 363,000. Futures closed on Thursday at $87.09 per barrel, an increase of 1%.

Natural Gas Prices

Natural gas futures rose nearly 8%, overcoming the impact of Hurricane Sandy, primarily due to the carry from the expiration of the November contract to the December contract. The onset of a cooler-than-normal winter this year is expected to sharply increase natural gas demand in December.

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

  1. Last Friday, natural gas futures fell during the day as traders considered Thursday’s EIA data, which showed that current natural gas inventories are 3,843 Bcf, just 9 Bcf below the record high of 3,852 Bcf reached last year. Storage was 91% full, well above average storage levels for this time of year.
    Prices were negatively impacted by 15-day weather forecasts showing temperatures moderating in early November after the current cold spell. Also bearish for the market was news of Hurricane Sandy approaching the East Coast. Although the hurricane would not limit production, it was expected to dampen gas demand as industrial facilities closed ahead of the storm. On a potentially bullish note, nuclear power plant outages in the region were expected to increase and help limit the downside.
    Baker Hughes announced on Friday that gas-directed rigs fell by 11 to 416, the lowest level since 1999. Natural gas futures closed down 1% at $3.40 per MMBtu.
  2. Trading was conducted electronically on Monday as the NYMEX trading floor was shut down due to Hurricane Sandy. Natural gas futures began rising as MDA EarthSat’s 10-14 day forecast showed that the eastern part of the U.S. would experience below-normal or average temperatures, which was expected to increase demand. The U.S. Nuclear Regulatory Commission stated that the hurricane might close a few of the nuclear power plants on the East Coast, which would increase gas demand to fill the gap. The news was enough to overcome concerns about dampening demand due to downed power lines. November’s natural gas futures contract expired up 2% at $3.47 per MMBtu.
  3. On Tuesday, natural gas futures opened at $3.80, nearly 10% higher due to the carry from the expiration of the November contract to the December contract and cooler weather forecasts.  The NYMEX floor remained closed for a second day. Later during the day, natural gas futures tumbled nearly 3% in electronic trading after Hurricane Sandy cut power to nearly 8 million consumers as it came ashore late Monday evening.  Analysts estimate the outages caused by the hurricane may have cut demand by ~1 Bcf/d. However, nuclear power plant outages were estimated at 32,000 MW, which is 13,000 MW higher than the same time last year. December natural gas futures closed down 11.3 cents (3%) at $3.69 per MMBtu.
  4. On Wednesday, natural gas futures closed nearly unchanged from the previous day closing of $3.69 per MMBtu. Traders were initially bullish about current high nuclear power plant outages, which were at their second-highest level in the past 10 years. However, as the trading day progressed, traders pared their positions ahead of EIA’s Thursday release of the natural gas market report, which was expected to show another rise in gas injections over the prior week.
  5. On Thursday, natural gas futures rose during early trading as traders noted that power outages to ~8 million people, which had lowered demand, were beginning to ease. However, ~4.5 million people were still without power on the East Coast. Also supporting prices was news that AccuWeather’s two-week forecast indicated average-to-below-average temperatures in the northeast and Midwest. However, post noon, prices tumbled ~6 cents as the EIA released its weekly natural gas data showing a new record high of natural gas in storage at 3,908 Bcf, up 65 Bcf from the prior week. The figure is 56 Bcf above the previous record of 3,852 reached last November. The EIA has estimated that gas in storage will peak at 3,925 Bcf before winter drawdowns begin this heating season. Storage is currently at 92% of total capacity. Natural gas futures closed at $3.70 per MMBtu.

Futures Curve

The U.S. Henry Hub natural gas futures curve is “out of contango” following the recent price rally due to cooler winter weather forecasts. Current natural gas inventories are ~7% higher than the five-year average. June 2013 natural gas futures are 5% higher than current prices, compared to ~4% 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) 14.85 14.80 0.32%
Gasoline Demand (MMBPD) 8.84 8.49 4.13%
Distillate Demand (MMBPD) 3.54 3.53 0.48%
Production (MMBPD) 6.67 6.61 0.89%
Imports (MMBPD) 7.92 8.82 -10.21%
Stocks (million barrels) 373.1 375.1 -0.55%
Rotary Rig Count 1,408 1,410 -0.14%
Natural Gas*
Indicators This Period Prior Period % Change
Consumption (Bcf)* 2,045 (Jul 12) 1,847 (Jun 12) 10.73%
Gross Withdrawals (Bcf)* 2,457 (Jul 12) 2,424 (Jun 12) 1.44%
Canadian Imports (Bcf)* 265.45 (Jul 12) 250.04 (Jun 12) 5.95%
LNG Imports (Bcf)* 15.36 (Jul 12) 8.26 (Jun 12) 86.02%
Working Storage (Bcf) 3,908 3,843 1.69%
Rotary Rig Count 416 427 -2.58%
Horizontal Rig Count 1,105 1,114 -0.81%

*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)

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