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Weekly Oil & Gas Market Highlights: February 9, 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, 2/9/12 Noon (EDT) on Thursday, 2/2/12
Front-Month NYMEX Light, Sweet Crude Oil (“WTI”) Futures $99.83 (March-2012 Contract) $95.94 (March-2012 Contract)
WTI Cushing Spot $99.74 $96.10
Dated Brent Spot $118.01 $111.29
Natural gas, USD per MMBtu Noon (EDT) on Thursday, 2/9/12 Noon (EDT) on Thursday, 2/2/12
Front-Month NYMEX Henry Hub Futures $2.50 (March-2012 Contract) $2.47 (March-2012 Contract)
Henry Hub Spot $2.49 $2.32

Data sources: Bloomberg; CME Group

Oil & Gas highlights

  • NYMEX WTI crude futures for March ended up for the week as a result of a falling dollar, a Greek agreement on austerity measures, and continued positive U.S. jobs numbers from the Department of Labor.
  • During last Friday’s trading, crude futures climbed during the day on positive employment figures from the Department of Labor.  Crude prices have tracked the economic outlook in the U.S., China, and Europe over the past year as economic prospects are seen as an indicator of demand.  The Department of Labor announced that unemployment dropped 0.2 percentage point in January to 8.3 percent.  Non-farm payrolls increased in by 243,000 to 12.8 million in January.  Unemployment has fallen by 0.8 point since August.  The long-term unemployed figure, which includes those out of work for 27 weeks or more, was little changed at 5.5 million or 42.9 percent of the total.   Currently, the ratio of the employed to the total population increased in January to 58.5 percent, with those in the private sector making up 63.7 percent of that figure.  Public sector employment was little changed over the month.  The news helped move crude prices up throughout the day.  With continued Iranian tensions buoying Brent prices, the WTI/Brent spread increased to ~$17 per barrel making an about-face from the $7 per barrel spread seen in December.
  • Over the weekend, the Iranian Parliament continued to consider a bill to enact pre-emptive oil sanctions on Europe in reaction to the EU’s January 23 decision to enact sanctions on Iran beginning on July 1 of this year.  Iran’s oil minister, Rostam Qasemi said Saturday that Iran will certainly stop exporting crude to some European countries.  He stated that Europe’s 18% consumption of Iran’s oil exports was not significant for the country.  Also over the weekend, Greek Party leaders were unable to come to agreement with Prime Minister Papademos to implement reforms demanded by the EU as a condition to receive an additional ~$170 billion in bailout funds.  The rescue funds must be made available to the Greek government by mid-March if the country is to avoid a default on its debt.  EU-backed reforms include lowering the minimum wage, lifting regulatory constraints to business, and eliminating the so called 13th and 14th month of pay given to employees as an annual bonus.  As a result of the lack of agreement, European leaders called off their planned Monday meeting while they await a Greek agreement on the issue.  NYMEX WTI crude futures fell on Monday’s open as traders sought to realize profits from Friday’s gain, but remained relatively flat throughout the day trading slightly above and below the $97 per barrel mark.
  • On Tuesday, Brent futures rose as European and Asian nations continued to diversify their supplies away from Iran, which drove the Brent/WTI spread to $20.05 per barrel recalling prior highs in the spread seen last autumn.  WTI futures began the day on a downward slope as it tracked the market fundamentals.  U.S. refiners are entering the maintenance season, which decreases demand, as they perform maintenance operations ahead of the seasonal gasoline demand increases in the spring.  East Coast refineries have seen their margins squeezed even as overall gasoline demand has declined to under 18 MMbbl/d.  As a result, refiners directed at the East Coast market have closed some 1 MMbbl/d of refinery capacity over the past several years.  In November 2011, East Coast demand for regular gasoline was 8.1 million gallons per day, down from a 2010 average of 12 million gallons per day.  Giving further bearish economic sentiment to the market, Greece still found no agreement over austerity measures in talks that continued to 4 a.m. Tuesday.  Private and public sector unions in Greece, the General Confederation of Greek Workers and Civil Servants' Confederation (ADEDY), began a 24-hour strike over the austerity measures.  Later in the day, negative economic signals out of the U.S. provided an ironic upside to WTI futures.  Federal Reserve Chairman Ben Bernanke stated during testimony before the Senate Budget Committee that the 8.3% unemployment figure released by the Department of Commerce last Thursday understates the weakness in U.S. employment.  While this would be bearish for oil demand, the news was simultaneously bearish for the dollar, which plummeted ~1.5% from 0.764 to the euro to 0.754.  Since oil is priced in dollars, the fall in the dollar provided a ~2% increase to WTI crude futures to $98.74.  The Federal Reserve maintains that 5.2% to 6% is consistent with maximum employment.  Bernanke stated that particularly troublesome was that the participation rate, which is a measure of the ratio of those employed to those of working age, declined to 63.7%, the lowest level since May of 1983.  Although unemployment has fallen 1.4% over the past two years, the participation rate has declined 1.1% as the Department of Labor has reduced the overall number of jobless who are looking for work.  Bernanke also cited the high percentage of long-term unemployed.  As a result, the Fed is likely to keep interest rates unchanged at least until 2014.   The rise in crude prices during the day was further supported by news that Goldman Sachs began closing its March 2012 WTI-Brent positions, which triggered trades selling Brent versus WTI as a result of the widening price spread between the two crudes.  The American Petroleum Institute (API) also released a bullish oil stocks report stating that petroleum stocks declined 4.5 million barrels last week, which supported the overall price rise.
  • On Wednesday, crude prices extended their Tuesday gains on concerns about potential Iranian supply disruptions and in the wake of bombings in Nigeria.  Two military bases located near the city of Kaduna in northern Nigeria were targeted with car bombs.  The targets of the attack were the Nigerian army’s 1st Mechanized Division headquarters and an Air Force base.  The region has been the scene of violence between the Islamic group Boko Haram and Christians for years.  However, NYMEX WTI prices fell sharply on release of the Energy Information Administration’s (EIA) weekly petroleum stocks report.  EIA reported that stocks rose by 300,000 barrels last week, which contradicted the API estimates of a 4.5 million barrel decline.  Overall oil demand still remained at near 13 year lows according to the report.  Despite the bearish report, NYMEX March crude futures closed up 30 cents at $98.71 per barrel.
  • Thursday, the Prime Minister of Greece, Lucas Papademos, announced that a deal had been reached over government spending cuts required by the EU for the country to receive additional bailout funds.  Details of the deal are still being released, but sources said that the government would make cuts and taxes increases totaling some 13 billion euros ($17 billion) between 2013 and 2015, which was nearly twice what had been pledged previously.  The Party leaders had come to agreement on 90% of the proposed cuts, leaving an additional 10% still up for discussion.  The full package still must be approved by the EU, IMF, and European Central Bank by February 15 in order for funds to be ready in time to prevent a Greek default.  Meanwhile, secretary general of the ADEDY union, Ilias Iliopoulos, pledged that, “There will be a social uprising.”  The country’s two major unions called for a 48-hour strike on Friday and Saturday.   News that OPEC cut its 2012 global oil demand forecast by 120,000 barrel did not put a damper on crude’s surge.  Further support for rising prices was found in the continually improving economic picture reflected in U.S. unemployment figures.  The Department of Labor reported that jobless claims fell by 15,000 last week to 358,000.  Market participants also eagerly eyed an approaching “golden cross” in the market where the 100-day moving average rises above the 200-day moving average.  Crossing the threshold usually triggers additional buying of contracts sending prices up.
    • EIA reported NYMEX crude futures closed down last week at $97.84 per barrel as crude stocks climbed 0.3 million barrels to 339.2.  Stocks are 5.8 million barrels lower than a year ago.
    • The average retail gasoline price was up $0.043 for the week to $3.42 per gallon.  Prices were up $0.35 year on year.  Gasoline stocks also continued to rise by 1.6 million barrels to 231.8 million barrels, which is down 9.1 million barrels year on year.
    • The average retail diesel price was up more than half a penny to $3.856 a gallon, up $0.34 from a year ago.
    • Residential heating oil was up $0.02 last week to $3.97 per gallon and $0.40 higher than a year ago.
    • The retail propane price was down more than half a penny to hold steady at $2.86 per gallon, which is $0.03 higher than a year ago.   Propane stocks dropped 2.3 MMbbls to 46.67 million, which is 11.87 million barrels higher than a year ago.

Natural Gas highlights

  • Henry Hub spot prices rose $0.17 last week from $2.32 per MMBtu to $2.49 as temperatures fell across much of the country.  The NYMEX March 2012 futures price also rose 2.8% or 6.6 cents to $2.448 on Wednesday up from $2.382 the prior week.
  • Domestic Natural Gas production was down by 0.3% to 64 Bcf/d, which is 19.5 Bcf/d higher than a year ago.  The natural gas rotary rig count declined by 32 rigs to 745 while the oil rig count increased by 20 to 1,245.
  • LNG imports increased to 5.5 Bcf up 29.5% year on year.
  • Working natural gas in storage fell 78 Bcf to 2,888 Bcf, which is 714 Bcf higher than last year.
  • Natural Gas consumption was up 4.8% as a result of weather-related demand with the residential and commercial sectors leading the rise with an 8.5% demand increase.  The Power Sector saw increased demand of 1.9% and the Industrial sector increased demand by 1.6%.  Temperatures were 9.7 degrees warmer than the 30-year average and 9.9 degrees warmer than last year.

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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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