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Weekly Oil & Gas Market Highlights: March 15, 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, 3/15/12 Noon (EDT) on Thursday, 3/8/12
Front-Month NYMEX Light, Sweet Crude Oil (“WTI”) Futures $104.55 (April-2012 Contract) $106.85 (April-2012 Contract)
WTI Cushing Spot $105.93 $106.74
Dated Brent Spot $122.64 $125.78
Natural gas, USD per MMBtu Noon (EDT) on Thursday, 3/15/12 Noon (EDT) on Thursday, 3/8/12
Front-Month NYMEX Henry Hub Futures $2.31 (April-2012 Contract) $2.24 (April-2012 Contract)
Henry Hub Spot $2.10 $2.24

Data sources: Bloomberg; CME Group

Oil & Gas highlights

  • NYMEX WTI crude futures for April trended lower throughout the week as bearish fundamentals dominated the market.
  • In Friday trading on March 9, WTI crude futures rose on news that China’s rate of inflation slowed in February to 3.2% from 4.5% in January.  The reduced inflation rate indicates that recent monetary policies adopted by the bank have proven to be the proper remedy for rising inflation and may indicate that China will look for further ways to expand its economy in the in near term.  Later in the day, the Greek government announced that it had reached agreement with the necessary number of private bond holders needed to implement the country’s debt restructuring plans.  However, because the event was widely anticipated, WTI prices were little changed on the news. Prices fell sharply ahead of the release of the Department of Labor’s employment data before skyrocketing to more than $108 per barrel on news of the addition of 227,000 jobs to the U.S. economy over the past week.  However, the unemployment rate remained unchanged at 8.3%.  Crude futures closed out last week at $107.40 a barrel.
  • On Monday, crude futures fell sharply in Asian trading on news that China had a $31.5 billion trade deficit in February down from a $27 billion surplus in January.  China has followed an export-led growth model that makes its economy sensitive to global economic downturns particularly in its consumer markets.  However, during the current downturn, China has been trying to stimulate internal demand in order to more easily weather the economic storm.  A Saudi Arabian official stated ahead of a meeting of the International Energy Forum between OPEC and the International Energy Agency (IEA) that the country was prepared to fill any gaps created by oil sanctions against Iran.  Futures prices opened lower in New York as they broadly tracked the S&P 500 and other commodities, which also opened lower.
  • Tuesday trading saw WTI futures rise in Asia on news from EU officials expressing confidence that Greece would get approval for a second bailout soon.  The news sent the euro up versus the dollar, which is bullish for futures prices.  The EU also stated that European nations could easily replace Iranian supplies of crude.  The U.S. Census Bureau released February retail sales figures showing a 1.1% (~$408 billion) increase over the month, the highest figure in five months.  Crude futures surged on the news.  Later in the afternoon the Federal Reserve’s Federal Open Market Committee (FOMC) announced that interest rates would remain unchanged and that it was its intention to keep rates at current levels at least until 2014.  The announcement from the FOMC had been widely anticipated.
  • Wednesday’s Asia trading fell with a strengthening dollar as overall volumes remained muted in anticipation of the Energy Information Administration’s (EIA) weekly oil stocks data.  Later in the day, the IEA released its monthly Oil Market Report in which the agency maintained its 2012 demand projection at 89.9 million bbl/d.  The agency also noted that OPEC supplies increased by 315,000 barrels in February, while non-OPEC supplies increased only 300,000 bbl/d as a result of unplanned outages in the North Sea and Canada and continuing instability in the Middle East and Africa.  Production from Saudi Arabia is at a three-decade peak of 9.85 MMbbl/d, Libyans supplies are recovering after the civil war earlier in the year growing from 550,000 bbl/d in November to just under 1 MMbbl/d in January.  Separately, Iraq is currently in discussion with U.S. oilfield services companies to double the output of the country’s large Kirkuk oilfield.  However, OPEC’s effective spare capacity is under 3 MMbbl/d at 2.82 MMbbl/d, which matched the spare capacity concerns that drove futures prices to historic highs in 2008.  However, bearish fundamentals are keeping futures prices from surging higher.  EIA reported that crude oil stocks increased by 1.75 million barrels last week.  The news led to a rapid sell-off in the market with futures prices dropping more than a dollar in late afternoon trading.  The underlying bearish fundamentals are reasserting themselves over recent geopolitical tensions.
  • Thursday trading saw futures prices yo-yo dramatically on false rumors of a coordinated SPR release.  Crude futures received a boost in early trading on the announcement by the Society for Worldwide Interbank Financial Telecommunication or SWIFT that it was severing its ties with Iranian banks, which not only cuts off Iran from a critical lifeline to oil trading, but also global commerce itself.  However, prices soon plunged as a rumor emerged that unidentified UK officials leaked that the country had agreed to cooperate with the U.S. on a release of oil stocks from the Strategic Petroleum Reserves (SPR).  The unconfirmed report seemed to have initial credence since the U.S. has used the SPR to adjust prices downward before.  Soon after the report emerged, White House press secretary Jay Carney announced that the two countries had reached no agreement on the issue.  U.S. leadership was integral to the June 2011 coordinated release of national oil stocks during the Libyan civil war.  During that release, the U.S. released half of the oil provided.  The Obama administration also stated that India has not made a “significant” reduction in its oil purchases from Iran since the beginning of the year and that if such reduction is not made, the U.S. may be forced to impose sanctions on India as well, which would bar any Indian bank processing payments related to Iranian oil from accessing the U.S. banking system.  India’s Oil Minister S. Jaipal Reddy has previously stated that the country would honor a United Nations sanction, but would not honor any other sanction and further stated that the country had not received any outside pressure about its dealings with Iran.  Japan has been negotiating with the U.S. for an 11% annual reduction in crude imports from the country, which might be a bench-mark figure for the un-quantified “significant” reductions the U.S. is seeking.  Meanwhile, the latest shipping data from the IEA shows that both India and South Korea have heavily increased purchases of crude from Iran this year.
    • EIA reported NYMEX crude futures were up $0.70 to $107.40 on March 9 even as crude stocks rose by 1.75 MMbbl to 347.5 million.  Stocks are 3.2 million barrels lower than a year ago.
    • The average retail gasoline price was up $0.036 for the week to $3.829 a gallon.  Prices were up $0.26 over last year.  Gasoline stocks fell by 1.4 MMbbl to 228.1 million barrels, which is up 3.1 MMbbl barrels from the same time last year.
    • The average retail diesel price was up by $0.03 to $4.12 a gallon.
    • Distillate stocks were down 4.7 MMbbl to 134.8 million barrels.  Down 17.8 MMbbl from a year ago.
    • Residential heating oil was up $0.005 last week to $4.105 per gallon.
    • The retail price of propane was up $0.001 over the week to $2.87 per gallon.

Natural Gas highlights

  • EIA reported Henry Hub spot prices fell $0.11 last week to $2.13 per MMBtu as warm temperatures persisted across much of the country.  Temperatures were 3.7 degrees warmer than the 30-year average and 3.1 degrees warmer than a year ago.
  • Domestic Natural Gas production fell 0.1% last week up 5.4% year on year.  U.S. gas imports from Canada were down 8.0% last week driven by a 46.2% drop in Northeast deliveries.  The natural gas rotary rig count fell by 21 rigs to 670.  Oil-directed rigs were up 3 to 1,296, 57% higher than a year ago.
  • Working natural gas in storage fell 64 Bcf to 2,369 Bcf, which is 735 Bcf higher than last year.
  • Domestic natural gas consumption fell by 13.1 percent from the previous week with the residential/commercial sector falling the most (24.9%) followed the power (4.1%) and industrial (3.7%) sectors.

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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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