Weekly Oil & Gas Market Highlights: September 29, 2011 Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators for the prior seven days

Data sources: Bloomberg; CME Group

Oil & Gas Highlights: Prices Rise on Expectations of Greek Debt Deal

• Oil prices rose this week in New York on speculation European governments will contain their sovereign-debt crisis, reversing the biggest quarterly decline since the global financial crisis in 2008. Last week, oil plummeted to the lowest level since August 9 over fears of the economic ripple effect of the European financial crisis and general fears that the global economy was further weakening. Macroeconomic concerns have been driving crude prices down overriding current microeconomic factors, such as the tight supply-demand balance. Renewed Libyan oil exports are expected to add some slack and downward pressure to the market. Bloomberg estimates put Libya’s August production at 45,000 barrels a day. The country’s production may reach 400,000 barrels a day next month, according to Citigroup analysts. Echoing an eight-year production high of 5.76 million barrel a day during the week ended September 23, U.S. crude oil inventories increased by 1.9 million barrels to 341 million barrels after falling continuously for three weeks. U.S. gasoline and distillate stockpiles increased marginally to 214.9 million barrels and 157.7 million barrels, respectively, last week.
• U.S. Treasury Secretary Timothy Geithner predicted Europe will intensify efforts to contain its debt problems following pressure at the International Monetary Fund meeting in Washington last week.
  • The U.S. average retail price of regular gasoline fell for the third consecutive week, sliding just over 9 cents to $3.51 per gallon. The average price is $0.82 per gallon higher than last year at this time.
  • The national average diesel price totaled $3.79 per gallon after declining by over four cents. The diesel price is $0.84 per gallon higher than last year at this time, according to the Energy Information Administration.
• The U.S. House of Representatives voted on September 23 to require the Environmental Protection Agency (EPA) to review and analyze the economic impact of its upcoming ‘tier 3’ regulations for gasoline. The proposed nationwide regulations (excluding California) will further lower the limits on sulfur content and Reid vapor pressure (RVP) in gasoline. The American Petroleum Institute released a report suggesting that the new requirements could increase the cost of gasoline up to 25 cents per gallon, close up to seven refineries, and drive up CO2 emissions by up to 7.4 million tons a year due to the increased energy needed to manufacture the new compliant fuel blend.
• On September 27, ConocoPhillips announced plans to sell its Trainer refinery in Pennsylvania. The refinery will be permanently shutdown in six months, if it cannot find a suitable buyer. The company cited product imports, weakness in fuel demand, and costly regulatory requirements as the factors guiding the decision. Sunoco has also put its refineries in the East Coast up for sale. The company plans to idle the facility, if it is unable to find a buyer.

Natural Gas Highlights: Prices Hold Steady after Roller Coaster Week

• Natural prices had a roller-coaster week as the Henry Hub spot price declined slightly before beginning an upward move to $3.92 in response to rising natural gas power demand. However, cooler temperatures across the country and robust supplies reasserted downward pressure on natural gas prices yesterday when it closed at $3.88. Continuing above-average storage injections have many analysts questioning if futures can reach bullish estimates of $4.50-5.00 per million British thermal units (MMBtu) by the end of the year on increased heating demand. Parts of the Midwest and Northeast experienced their first heating demand of the season. Supply remained relatively unchanged as production inched up just 0.1 percent. As a result, increased demand was met by Canadian and LNG imports, which were up 5.1 percent and 17.8 percent respectively. Analysts expect a bearish shoulder-season market of robust supplies as summer gas-fueled cooling needs decrease before winter heating demand picks up.
  • The natural gas rotary rig count held steady this week at 912 active units maintaining an 8-month high according to Baker Hughes Incorporated.
  • Total working gas in storage rose to 3,312 Bcf as of Friday, September 23, 2011 following a 111 Bcf injection during the week. Stocks are down 2.7 percent from last year, but just over the 5-year historical average of 3,307
  • The world LNG market continues to tighten as a result of LNG terminal maintenance in Qatar and Trinidad and production declines from major exporting countries according to BENTEK Energy Services, LLC. Higher relative LNG prices in Asia continue to attract deliveries away from the U.S.
• The House of Representatives approved the Transparency in Regulatory Analysis of Impacts on the Nation (TRAIN) Act, which requires a closer examination of how the EPA’s stricter smog standards will affect electricity and gas prices, electric reliability and the economy. In recent weeks, Republicans suggest the economic costs of EPA regulations outweigh the benefits for both smog and cross border emissions and pollution from power plants. The bill passed with an amendment offered by Rep. Ed Whitfield, R-Ky., that pertains specifically to the utility maximum achievable control technologies (MACT) rule and the Cross-State Air Pollution Rule. “This amendment provides much-needed regulatory relief to America’s power sector and will ensure American families can keep the lights on,” the House Energy and Commerce House passes bill to study economic impact of EPA rules on power sector.”
  • The White House responded by saying TRAIN would negatively affect public health protections and threatened to veto the measure on September 21. The TRAIN Act has bipartisan support and commissions an interagency committee to analyze the economic impact of EPA rules to assess how they affect jobs, energy prices, electric reliability and America’s overall global competitiveness. The bill also would amend a federal law that prohibits the EPA from considering the economic costs of health-driven air pollution standards. Democratic leaders in the Senate vowed to block the measure. Two other bills aimed dealing with EPA rules are currently progressing in the House that would delay efforts to control pollution from cement plants and industrial boilers.

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Learn More!

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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December 15, 2011
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