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Weekly Oil & Gas Market Highlights: July 5, 2012

Deloitte Center for Energy Solutions publication

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Key Oil & Gas Price Indicators

Front Month Futures (August) July 5, 2012 July 21, 2012 % Change
Oil – WTI
(USD per barrel)
$87.22 $78.20 11.53%
Oil – Brent
(USD per barrel)
$100.70 $89.23 12.85%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$2.95 $2.58 14.34%

Data sources: Bloomberg; CME Group

Crude Oil Prices

Oil prices rebounded over the past two weeks driven by news that the EU would capitalize its banks and China engaged in another round of interest rate easing. A barrage of negative economic news worldwide turned unusually bullish for crude as it was expected the European Central Bank (ECB) would have to engage in further easing. Mounting tensions with Iran have re-injected the geopolitical risk premium to the price as the Iranian Parliament takes up a bill to close the Straits of Hormuz in response to U.S.-led oil sanctions on the country.

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

  1. WTI futures (August) gained 2% on Friday as traders felt that the benchmark crude had been oversold during the week and government warned about Tropical Storm Debby hitting the U.S. Gulf Coast. Futures prices tumbled ~7% during the prior four days. Futures increased by $1.56 per barrel and closed at $79.76 per barrel.
  2. Prices rose in early trading on Monday as 700 Norwegian oil workers went on strike resulting in an estimated closure of 286,000 boe/d of production.
  3. In the afternoon, crude futures fell on continuing concerns about last Thursday’s Federal Open Market Committee decision that cooled hopes for a new round of easing. The dollar also gained versus the euro sending crude futures prices down.
  4. Prices moved sideways on Tuesday as traders took note of Moody’s late Monday downgrade of 28 Spanish banks. During the day, South Korea announced it was halting imports of Iranian crude at the end of the week. The Norwegian strike failed to provide much upside as it was clear that the volumes were not enough to overcome demand concerns and Norwegian strikes typically only last a few days.
  5. Prices rose throughout Wednesday on positive home sales and durable goods orders data in the U.S. and anticipation of the impending Iran oil sanctions. Also, U.S. Energy Information Administration (EIA)’s weekly oil stocks report showed that oil stocks declined last week by 100,000 barrels to 387.2 MMbbl. Refinery utilization is at 92.6% largely as a result of a new burgeoning export trade for petroleum products. U.S. gasoline stockpiles rose 2.1 MMbbl during previous week.
  6. On Thursday, futures prices dropped as the Department of Labor (DOL) announced that new jobless claims fell by only 6,000 to 386,000. However, DOL revised their prior week figure up by 5,000 to 392,000 making the change to the total seem much smaller (386,000 this week vs. 387,000 last week). Futures also fell along with the broader market after JP Morgan’s announcement that its $2 billion loss has grown to a $9 billion loss as it continues to unwind the trades. The U.S. announced that it had exempted China and Singapore from the Iranian sanctions regime.
  7. Crude futures surged more than 9% on Friday, June 29 as EU leaders emerged from the first day of the Brussels summit to announce a plan to recapitalize European Banks. The leaders said that all Eurozone countries would have access to both bailout funds: the European Financial Stability Fund and the European Stability Mechanism. The news also sent the euro up versus the dollar, which is bullish for crude.
  8. Crude futures trended lower on Monday as China reported that its manufacturing activity grew at the slowest pace this year. China’s Purchasing Managers Index (PMI) fell to 50.2 in June from 50.4 in May. EU unemployment data showed that unemployment was at 11.1%, the highest level of unemployment since records began in 1995, which sent futures prices falling. The Institute for Supply Management announced that the U.S. PMI fell to 49.7 in June from 53.5 in May. A number below 50 indicates contraction. However, the downside risk is likely to be limited as the Iranian oil sanction went into effect on Sunday, July 1.
  9. WTI futures prices rose as expectations increased that, given all the recent negative economic news, the ECB would have to lower its key interest rate when it meets on Thursday. The Eurozone’s PMI was 45.1 in June and Germany’s was 45. Also, geopolitical risk is being priced back in as Iran began military drills and missile tests. The Iranian Parliament has also drafted a bill to block U.S. and European tankers from the Strait of Hormuz, which the U.S. military has pledged to keep open. In recent weeks, the U.S. has prepositioned its forces in the region.
  10. On Wednesday, WTI futures trading volumes were thin and prices remained in a range due to the U.S. Independence Day holiday.
  11. WTI futures prices rose in Asian trading as China announced that it would reduce its interest rates for the second time in one month in order to stimulate the economy. Futures prices also rose as Norway’s Statoil announced that it was preparing to shut down operations on the continental shelf over a labor dispute. Brent prices crossed the $100 per barrel mark on the news. However, prices fell as the company announced it sought a quick resolution of the dispute. The ECB cut rates to their lowest level ever 0.75%, but that sent the dollar soaring 1.3% which is bearish for crude. EIA announced that U.S. crude stock fell by the highest amount this year declining 4.27 million barrels to 382.9 million barrels.

Natural Gas Prices

Natural gas futures rose in the past two weeks and closed at a six-month high of $2.95 per MMBtu as a stream of news about a heat wave in the U.S. hit the market. Supply disruptions in the Gulf of Mexico and Colorado also added to the price rise.

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

  1. On Friday, natural gas futures gained 1.7% amid forecasts of a tropical storm in the U.S. Gulf of Mexico and expectations of lower-than-expected inventory build-up.
  2. Natural gas futures rose 2.6% on Monday after tropical storm Debby impacted more than a third of natural-gas production in the Gulf of Mexico. O&G companies shut down 1.56 billion cubic feet (Bcf/d) of natural-gas production, nearly 35% of the Gulf's output, according to the U.S. Bureau of Safety and Environmental Enforcement.
  3. Prices rose to a five-month high on Tuesday amid forecasts of above-normal temperatures. MDA EarthStat projected that temperatures across the U.S. would rise well above the normal levels next week, with extreme temperatures in the central U.S.
  4. Prices rose by nearly 5 percent during early trading hours on Wednesday due to encouraging U.S. economic data on home sales and durable goods orders and MDA’s forecast for hotter-than-normal weather. However, prices dropped from their highs and closed with a marginal gain of 0.3% on account of profit booking by investors and traders.
  5. Natural gas futures tumbled Thursday after U.S. natural gas stockpiles rose by 57 Bcf, 5 Bcf more than analysts’ expectations. The increase in inventories adds to concerns that stockpiles may fill total available capacity by fall, a scenario that would result in price sell-off.
  6. Prices rose 3.7% as forecasts called for a heat wave across much of the U.S. next week, which will increase power demand for cooling.
  7. Prices were relatively flat on Monday on expectations that the latest bull market may run out of steam as it approaches $3 per MMBtu, which is the break-even price with coal.
  8. On Tuesday, it was reported that over 100 natural gas wells have shut down in Colorado as a result of the recent wildfires. There are concerns about mounting gas in storage and some analysts expect a price collapse later this summer.
  9. Natural gas futures rose above $2.90 per MMBtu in holiday-thinned trade on Wednesday, as forecasts for extreme heat in the U.S. continued to boost near-term demand for the fuel.
  10. U.S. natural gas futures hit a 6-month high as a result of continued heat across much of the country. After slumping below $2 per MMBtu in April, natural gas prices are nearing $3 per MMBtu. Utility demand has been rising due to switching from coal to natural gas.

Futures Curve

U.S. Henry Hub natural gas is in “super contango” due to limited storage capacity (current natural gas inventories are 25% higher than the five-year average). March 2013 futures delivery price for natural gas is 22% higher than its current spot price, compared to just ~3% 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) 15.63 15.65 -0.10%
Gasoline Demand (MMBPD) 9.00 8.84 1.82%
Distillate Demand (MMBPD) 3.85 3.83 0.50%
Production (MMBPD) 6.09 6.26 -2.61%
Imports (MMBPD) 8.77 9.12 -3.79%
Stocks (million barrels) 382.9 387.2 -1.11%
Rotary Rig Count 1,421 1,421 0.00%
Natural Gas*
Indicators This Period* Prior Period* % Change
Consumption (Bcf)** 1,944 (Apr 12) 2,110 (Mar 12) -7.85%
Gross Withdrawals (Bcf)** 2,450 (Apr 12) 2,539 (Mar 12) -3.51%
Canadian Imports (Bcf)** 246.91 (Apr 12) 246.88 (Mar 12) 0.01%
LNG Imports (Bcf)** 7.55 (Apr 12) 19.27 (Mar 12) -60.81%
Working Storage (Bcf) 3,063 3,006 1.90%
Rotary Rig Count 534 541 -1.29%

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)

Comments and questions welcomed. Please contact DeloitteCenterforEnergySolutions@deloitte.com

Learn more

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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