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Weekly Oil & Gas Market Highlights: August 23, 2012

Deloitte Center for Energy Solutions publication

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Key Oil & Gas Price Indicators

Front Month Futures (August) August 23, 2012 August 16, 2012 % Change
Oil – WTI
(USD per barrel)
$96.27 $95.60 0.7%
Oil – Brent
(USD per barrel)
$115.01 $116.90 -1.6%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$2.80 $2.72 2.9%

Data sources: Bloomberg; CME Group

Crude Oil Prices

WTI crude futures rose as high as $98.29 per barrel this week on hopes of a meeting between Eurozone leaders, before closing at $96.27 per barrel. Weak economic data from the U.S. led to a steep drop in prices on Thursday, erasing most of the week’s gains. The Brent-WTI spread narrowed on expectations of a rebound in North Sea output.

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

  1. On Friday, August 17, futures fell in Asia on profit-taking as production resumed at the North Sea Buzzard oil field with an accelerated September loading schedule. The Brent-WTI spread fell from $21 per barrel to ~$18 per barrel. Crude prices fell further in London trading as White House statements fueled speculations that the U.S. may consider releasing oil from the Strategic Petroleum Reserve (SPR) into an already oversupplied world oil market. However, Maria van der Hoeven, the executive director of the International Energy Agency (IEA), stated that such a move would be unwarranted, given current world oil stocks. As a result, traders grew skeptical about the SPR release and crude futures rose, erasing the loss in earlier sessions. WTI futures closed up for the day at $96.01 a barrel.
  2. Over the weekend, German weekly magazine Der Spiegel stated that the European Central Bank (ECB) is considering setting an upward limit on bond yields to decrease the financial pressure on financially troubled Eurozone nations. However, the market fell below $95.50 per barrel as ECB discarded that news. A statement from German Bundesbank that it would not engage in ECB bond-buying efforts aggravated Eurozone concerns and added to the fall in crude prices. Monday trading volumes were light in Asia as the Singapore market, the major oil trading center in the region, was closed for a national holiday. During the day, the Chinese government announced that housing prices in the country increased in July for the second month in a row, an indication of an improvement in the Chinese economy. During the session, oil futures reached a three-month, intra-day high of $96.53 per barrel supported by a continued geopolitical risk premium factored into the price as a result of the tensions between the West and Iran.
  3. Crude futures rose in Asian trading on Tuesday as the euro rebounded versus the dollar. Since June, benchmark WTI futures have risen ~25%. In London trading, market participants bid up futures on expectations of further assistance to debt-laden Eurozone economies. Greek Prime Minister Antonis Samaras and European leaders from France and Germany are scheduled to discuss the debt crisis later this week. The WTI September futures, which expired at the end of the day, reached over $97.60 per barrel, its highest level since May during intraday trading. The futures ended the day up $0.71, expiring at $96.68 per barrel. The October delivery contract was up $0.58 cents at $96.84 per barrel.
  4. Crude futures fell in Asian trading on Wednesday as Japan announced that its second-quarter exports fell 8.1% year-on-year, driven by lower overseas demand in China and Europe. Futures began to rise in London trading as Nigerian oil workers announced plans for a national strike on Thursday in a move designed to slow the implementation of fuel subsidy reductions in the country. Futures continued to rise as the Energy Information Administration (EIA) announced that crude oil inventories fell 5.4 MMbbl (~0.5%) to 360.7 MMbbl last week, largely as a result of ~6% decline in crude oil imports. Imports were 8.21 MMbbl/d for the week ending August 17. Gasoline stocks were down just under one MMbbl to 202.7 MMbbl, while distillate stocks rose ~1 MMbbl to 125.2 MMbbl. Refining utilization rates declined ~1.5% to 91.6%. Futures also rose as the minutes from the Federal Open Market Committee (FOMC) showed widespread sentiment within the group that further easing may be necessary soon if there are no strong signs of an increase in economic activity.
  5. Oil futures traded as high as $98.29 per barrel in the first half of Thursday trading, as German Chancellor Merkel and French President Francois Hollande met in Berlin and expressed their determination to find a solution to the Eurozone debt crisis. Greek Prime Minister Samaras will join the two on Friday. However, futures plunged in the second half of the day, as the U.S. Department of Labor announced that jobless claims increased by 4,000 last week to 372,000, contradicting forecasts of a decline. Crude oil for October fell as low as $95.75 during the day before closing at $96.27 per barrel.

Natural Gas Prices

Natural gas futures closed ~3% higher than last week at $2.80 per MMBtu, despite higher-than-estimated build-up in inventories. Futures rose on concerns over Tropical Storm Isaac developing into a hurricane, which may affect oil and gas production in the Gulf of Mexico (GoM).

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

  1. Natural gas futures ended lower on Friday at $2.72 per MMBtu for the third day in a row, losing 4% of their value in the past three sessions and down ~15% thus far in August. Nuclear power plant outages are ~7,200 MW more than this time last year, which is expected to increase near-term natural gas demand and temporarily boost gas prices. Technical analysts note that a close below $2.70 will likely trigger further downside, with the next layer of support at ~$2.60 per MMBtu.
  2. Natural gas futures rose on Monday as AccuWeather.com predicted normal or slightly above-normal temperatures for the remainder of the week in the Northeast and Midwest. The U.S. National Hurricane Center (NHC) noted that tropical depression nine in central Atlantic has ~80% chance of developing into a tropical storm over the next two days. The depression could pose a threat to key oil and gas installations in the GoM if it develops into a hurricane and begins moving westward. Futures closed 2.1% higher at $2.78 per MMBtu. Nuclear power outages fell by 2,500 MW, 700 MW below last year’s outages for the week.
  3. Natural gas futures dropped marginally in response to a 2-1 decision by the U.S. Court of Appeals for the D.C. Circuit to overturn a ruling by the Environmental Protection Agency to limit sulfur dioxide (SOX) and nitrogen oxide (NOX) from power plants. The court’s ruling has the potential to allow some coal plants to continue operations, which is bearish for natural gas futures. Coal company stocks increased on the news. However, gas traders shrugged off the news as many of the planned coal plant closures are a result of other EPA regulations still in effect. The NHC said a low-pressure system on the Northeast coast of Mexico has ~30% chance of developing into a tropical storm in the next 1-2 days, while tropical depression nine could become a Tropical storm Isaac during the day. Nuclear outages for Tuesday stood at ~8,100 MW (8% of total U.S. capacity).
  4. Natural gas futures rose throughout the day on Wednesday as traders expected warmer temperatures next week to increase the demand for power burn. Mild temperatures this week have slowed electricity demand. Traders also were concerned that Tropical Storm Isaac could strengthen into a hurricane and head to the oil and gas producing regions of the GoM. However, computer models predict the storm will turn northwest and head toward Florida instead. Another formation, topical depression 10, is also being monitored by the NHC, but it is expected to turn sharply northward avoiding the Caribbean Sea and head toward the East Coast.
  5. On Thursday, natural gas futures plummeted as the EIA released its weekly gas report showing that working natural gas in storage rose 47 Bcf, well above analyst estimates. However, the build was still below last year’s figure of 66 Bcf during the same week. Futures quickly rebounded to $2.80 per MMBtu as a result of continued concerns about Tropical Storm Isaac, which could begin moving westward into the oil and gas producing region of the GoM. However, NHC models show the tropical storm heading north and west toward Florida. Further, the NHC reported during the day that Isaac had “slightly weakened” as it headed to the Caribbean.

Futures Curve

U.S. Henry Hub natural gas is in “contango” due to the limited storage capacity (current natural gas inventories are 12% higher than the five-year average). March 2013 natural gas futures are still 22% higher than spot prices, compared to less than 2% 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) 15.44 15.71 -1.74%
Gasoline Demand (MMBPD) 9.08 9.31 -2.44%
Distillate Demand (MMBPD) 3.56 3.57 -0.22%
Production (MMBPD) 6.25 6.18 1.05%
Imports (MMBPD) 8.21 8.72 -5.85%
Stocks (million barrels) 360.7 366.2 -1.50%
Rotary Rig Count 1,425 1,432 -0.49%
Natural Gas*
Indicators This Period* Prior Period* % Change
Consumption (Bcf)** 1,850 (May 12) 1,944 (Apr 12) -4.71%
Gross Withdrawals (Bcf)** 2,527 (May 12) 2,450 (Apr 12) 3.27%
Canadian Imports (Bcf)** 240.34 (May 12) 246.91 (Apr 12) 2.09%
LNG Imports (Bcf)** 16.21 (May 12) 7.55 (Apr 12) 114.65%
Working Storage (Bcf) 3,308 3,261 1.44%
Rotary Rig Count 484 495 -2.22%
Horizontal Rig Count 1,153 1,161 -0.69%

Notes:
*The EIA did not release a natural gas report this week due to the U.S. Independence Day holiday. Thus, this period data is for the week ending June 27 and prior period data is for the week ending June 20.
**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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