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Weekly Oil & Gas Market Highlights: May 10, 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, 5/10/12 Noon (EDT) on Thursday, 5/3/12
Front-Month NYMEX Light, Sweet Crude Oil (“WTI”) Futures $97.03 (June-2012 Contract) $102.88 (June-2012 Contract)
WTI Cushing Spot $96.97 $102.91
Dated Brent Spot $112.53 $116.33
Natural gas, USD per MMBtu Noon (EDT) on Thursday, 5/10/12 Noon (EDT) on Thursday, 5/3/12
Front-Month NYMEX Henry Hub Futures $2.44 (June-2012 Contract) $2.36 (June-2012 Contract)
Henry Hub Spot $2.36 $2.31

Data sources: Bloomberg; CME Group

Oil & Gas highlights

  • NYMEX WTI crude futures for June ended the week down as the Eurozone debt-crisis loomed large over market sentiment as well as fears of a collapse in the euro and weak demand data out of China.
  • Crude futures slumped throughout the day last Friday.  In Asian trading, market participants processed the negative economic data from Thursday and held off their bets on the market ahead of the U.S. Department of Labor’s (DOL) jobs report expected later in the day.  Further dampening futures prices was a statement by Abdalla Salem el-Badri, Secretary General of OPEC, that total OPEC production was up by 2 MMbbl/d and above the target set in December.  He reiterated that OPEC is seeking an oil price around $100 per barrel in order to stave off demand destruction.  Futures prices plummeted when the DOL’s jobs data showed that payrolls of nonfarm employees only increased by 115,000 well below analyst expectations.  The data follows two months of weak jobs growth.  Regulatory complications also worked to dampen crude prices as commodities traders will be required in 90 days to double the amount of money they provide on margin trading.  Despite a 90-day window, traders are accumulating the cash now in preparation and as a result there is less liquidity in the market.  NYMEX WTI crude futures prices closed down $4.15 on the day at $98.39 per barrel.
  • Over the weekend, futures prices tumbled even further as the future of EU austerity measures to curb burgeoning government debt appeared to be in doubt as the early results of the elections in Greece and France were announced.  In Greece, the elections left the two main political Parties too weak to govern the county.  With anti-austerity Parties making large gains, it appears increasingly likely that Greece may leave the euro since it must come up with $15 billion in additional spending cuts or the EU will cut off its line of credit.  As a result, Greece would need to print its own money, which it currently can’t do as a Eurozone member.  Europeans fear that if Greece leaves the euro, there may be massive capital flight from debt-laden countries like Portugal and Spain. In France, Francois Hollande defeated French President Sarkozy, who had been supportive of government spending cuts.  It is expected that there will be more elections in June.  As doubts persist over Europe’s ability to manage its growing debt levels, crude futures will be weighed down by the uncertainty.
  • Crude futures fell in Asian trading and in European trading as traders continued to process the result of the elections over the weekend and net long positions were unwound given the current bear market for crude.  Some traders believe that additional government spending may stimulate the European economy leading to growth.  However, others believe that an ever-increasing government debt load is unsustainable and drains the private sector of necessary investments that would grow the economy because financing is diverted to support ever more government spending through purchases of bonds.  Morgan Stanley also released a report that said that crude stocks should continue to build through the third quarter of the year staying above the average and that there would be a margin of more than 800,000 barrels of oil per day above demand.  NYMEX WTI futures closed at $97.94, down $0.55.  WTI futures prices have dropped around 8% in the past four days.  Brent futures were also down at $113.16 per barrel, down 5.5% over the same period.
  • On Tuesday, futures prices tumbled further after Saudi Oil Minister Ali al-Naimi said that OPEC will discuss an increase in production next month.  U.S. Secretary of State Hillary Clinton also recognized India for working to curb their imports of Iranian crude.  India, Turkey, and China have been given until June 28 to reduce their imports of Iranian crude.  European concerns also weighed on the futures price as it becomes increasingly clear that the formation of a coalition government in Greece was in doubt.  It is still possible that anti-austerity Parties could gain control of the government and force Greece off the euro.  Market analyst pondered whether new left-wing government increases in spending will deepen the recession in Europe, thus reducing demand even further.  Futures prices were down for the fifth straight day having fallen just under 10% over the period to close at $97.01 down $0.93.
  • Crude futures traded mostly sideways throughout the day on Wednesday as data from the American Petroleum Institute showed crude stockpiles rose 7.8 million barrels to 378.2 last week.  Following the release of the data, futures prices hit an intra-day low just about $96 per barrel.  Continuing pessimism about the Greek government weighed on prices throughout the day.  Futures prices rose slightly on mixed data from the U.S. Energy Information Agency (EIA).   The data showed that crude stocks rose 3.7 million barrels last week to 379.5 million barrels, which was greater than analyst expectations.  However, gasoline demand increased with stocks falling 2.6 million barrels and prices falling by $0.04 per gallon and distillate stocks fell by 3.3 million barrels.
  • On Thursday, futures prices fell in Asia on news that China’s net imports of crude declined.  Additionally, China’s state-owned refineries are shutting down ~12% of their capacity next quarter as a result of seasonal maintenance.  Saudi Arabia continues to increase production exporting 10.1 MMbbl/d in April, which is up 200,000 from March.  The futures price finally showed some upside in the midst of otherwise bearish sentiment when the DOL reported that jobless claims fell 1,000 to 367,000 last week and the 4-week moving average fell to 379,000.
    • The EIA reported NYMEX WTI crude futures prices fell $6.44 last week to $98.49 per barrel.  Crude stocks posted another build climbing 3.7 MMbbl to 383.2 million barrels.  Stocks are 9.2 million barrels higher than a year ago.
    • The average retail gasoline price fell $0.04 last week to $3.79 a gallon while gasoline stocks fell 2.6 MMbbl to 207.1 million barrels, which is 1.3 MMbbl higher than last year.
    • The average retail diesel price fell $0.016 to $4.06 a gallon.
    • Distillate stocks were down by 3.3 million barrels to 120.8 million barrels and down 23.5 million barrels year on year.

Natural Gas highlights

  • The EIA reported Henry Hub spot prices rose 5 cents last week to $2.36 per MMBtu.  The NYMEX gas futures price was up 21.2 cents (~9.5%) to $2.465 per MMBtu.
  • The domestic natural gas supply was down 1.1% last week to 63.6 Bcf/d, which is down 0.5% year on year.  The natural gas rotary rig count fell 4 rigs to 606.  Oil-directed rigs were up by 27 to 1,355.
  • Working natural gas in storage was up 30 Bcf to 2,606 Bcf, which is 557 Bcf below the 5-year average.
  • Domestic natural gas consumption was down 7.1% percent from the previous week with the power sector rising 2.2%, which is up 44% year on year.  Demand from the residential/commercial sector was down 24.2% and industrial sector demand was down 2.7%.  The average temperature in the lower 48 states was up 3.3 degrees over last year and 2.6 degrees higher than the 30-year average.

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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