Weekly Oil & Gas Market Highlights: October 6, 2011
Deloitte Center for Energy Solutions publication
Key Oil & Gas price indicators for the prior seven days
|Crude oil, USD per bbl||Noon (EDT) on Thursday, 10/6/11||Noon (EDT) on Thursday, 9/29/11|
|Front-Month NYMEX Light, Sweet Crude Oil (“WTI”) Futures||$80.58 (November-2011 Contract)||$83.20 (October-2011 Contract)|
|WTI Cushing Spot||$80.49||$82.27|
|Dated Brent Spot||$104.00||$107.20|
|Natural gas, USD per MMBtu||Noon (EDT) on Thursday, 10/6/11||Noon (EDT) on Thursday, 9/29/11|
|Front-Month NYMEX Henry Hub Futures||$3.54 (November-2011 Contract)||$3.73 (October-2011 Contract)|
|Henry Hub Spot||$3.62||$3.88|
Data sources: Bloomberg; CME Group
Oil & Gas Highlights
- Oil rose midweek on news that Europe is making strides to control its debt crisis, bullish U.S. supply data and an uptick in U.S. employment figures. Crude inventories fell 4.7 million barrels, according to the Department of Energy (DOE). Inventories at Cushing, Oklahoma, the delivery point for New York-traded futures, tumbled 831,000 barrels to 30.1 million last week, the lowest level since March 2010, according to the DOE. Gasoline stockpiles, which expected to increase, fell 1.14 million barrels. U.S. total fuel demand, as measured by products supplied by refiners, averaged 18.9 million barrels over the previous four weeks – 1.3% less than the same time last year. Domestic oil supply remains robust due to advances in technological prowess and increased deepwater activity in U.S. Gulf of Mexico (GOM). A recent report by the Energy Information Administration (EIA) suggests technological advances in oil and natural gas are reducing the interval from the discovery of commercially recoverable hydrocarbons to production and allowing for smaller discoveries to be economically viable. The average interval from discovery to production for deepwater fields in 1980s was 11.4 years, 5.9 years in 1990s down to 3.3 years in the 2000s. In addition to advancements in technological prowess, faster turnaround in recent GOM discoveries reflects proximity to existing production and transportation facilities.
- The U.S. average retail price of regular gasoline fell for the fourth straight week, declining just over seven and a half cents to reach $3.43 per gallon. The average price is $0.70 per gallon higher than last year at this time.
- The national average diesel price fell almost four cents per gallon to $3.75 per gallon. The diesel price is $0.75 per gallon higher than last year at this time.
- Oil prices took a deep slide as the week opened to news of global economic woes, only to recover Midweek on a larger-than-expected crude supply draw. Volatility and associated ebbs and flows in crude market prices are likely to persist. Market participants have put a record number of puts on hedges against volatility in U.S. energy stocks. In fact, implied volatility for three-month options on the Energy Select Sector SPDR exchange-traded fund is almost double the average since March 2009, according to Bloomberg. Fears that oil will extend losses as the economy falters boosted bearish options to the highest level relative to bullish ones since November 2008. Price-earnings ratios for the group have sunk to the lowest levels versus the S&P 500 since 2009. Oil sank to a one-year low of $74.95 a barrel Tuesday on fears that we are entering another recession. The International Monetary Fund recently lowered its forecast for global growth as Europe fails to contain its debt crisis, China battles inflation, and the U.S. economy stalls.
- The International Energy Agency(IEA) cut global oil demand forecasts for 2012 consumption by 400,000 barrels a day, and for 2011 by 200,000 a day. Worldwide demand will rise by 1.2 percent to 89.3 million barrels a day this year and by 1.6 percent to 90.7 million next year, according to the IEA.
- Energy stocks in the S&P 500 have retreated 26 percent since April 29, when the stock index peaked and crude oil climbed to the highest level since September 2008. That’s the third-biggest decline among 10 groups, according to Bloomberg.
- Losses accelerated after July 22, the S&P 500’s high point before S&P cut the U.S. government’s credit rating. Oil futures tumbled 17 percent in the third quarter for the worst performance since the last three months of 2008, adding to the 11 percent decline during the second quarter. Brent crude slumped 12 percent during the past six months.
Natural Gas Highlights
- Natural gas consumption increased this week despite a fall shoulder-season market with mild temperatures present over the past week. Natural gas prices remain lower than forecasted by analysts due to a combination of supply and demand fundamentals. With the U.S. economy in the doldrums, domestic industrial production down, and limited LNG capacity to meet export demand in emerging economics, natural gas prices have fallen on the demand side. While natural gas bulls, point out there has been a recent uptick in industrial production, only electricity generation has shown growth during a time when other sectors remain flat. The import/export mix has reversed recently, but LNG export capacity is too small for any significant export-led demand to spur natural gas prices right now without U.S. LNG export facilities in place. On the supply side, technological advancements in hydraulic fracturing have led to a storage oversupply and near-record high storage refills in September, putting downward pressure on prices. Shale has a strong role to play. Even as drilling costs verge on outpacing prices, production of natural gas continues at record pace.
- Working gas in storage was 3,409 billion cubic feet (Bcf) as of Friday, September 30, 2011, according to EIA estimates. This represents a net increase of 97 Bcf from the previous week. Stocks were 78 Bcf less than last year at this time and 28 Bcf above the 5-year average of 3,381 Bcf. Stocks are now 129 Bcf less than last year at this time.
- The natural gas rotary rig count rose by 11 to 923 active units and now stands only 39 units below last year, according to Baker Hughes Incorporated.
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The euphoria that has surrounded shale gas in recent years has been tempered by questions about the profitability of recent investments and prospects for future successful development. Read Navigating a Fractured Future: Insights into the Future of the North American Natural Gas Market, which addresses many of the questions and summarizes the findings of multiple scenarios regarding the future of North American and global gas markets and offers related strategic insights.
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