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Weekly Oil & Gas Market Highlights: October 18, 2012

Deloitte Center for Energy Solutions publication

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Key Oil & Gas Price Indicators

Front Month Futures (August) October 18, 2012 October 11, 2012 % Change
Oil – WTI
(USD per barrel)
$92.10 $92.07 0.0%
Oil – Brent
(USD per barrel)
$112.42 $115.71 -2.8%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.59 $3.60 -0.5%

Data sources: Bloomberg; CME Group

Crude Oil Prices

Crude futures ended flat this week as traders weighed rising oil supplies and slowing demand growth against additional sanctions on Iran and a temporary closure of TransCanada’s Keystone pipeline. Futures have traded in a narrow range of $91-$93 per barrel over the past eight sessions, despite sharp intra-day price swings, suggesting traders are not certain about the future direction of prices. 

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

  1. Crude oil futures fell in early trading last Friday as the International Monetary Fund (IMF) forecast that in 2017, global oil supply capacity will expand to 102 MMbbl/d, but global demand is only forecast to be 95.7 MMbbl/d. The IMF forecast that demand in developed economies would continue to contract and demand in developing countries would grow more slowly than anticipated. Also, the data showed that the economic growth in Asia for 2012 would only average 5.4%, which is over half a percentage point less than originally expected in April. However, tensions in the Middle East, particularly between Turkey and Syria, are keeping a floor under prices. In New York trading, crude prices fell in line with the gasoline market where traders sold positions of reformulated blend stock for oxygenated blending (RBOB) on expectations of refinery restarts after recent outages during annual turnarounds. Delta Airlines announced that it was restarting its 185,000 bbl/d Trainer refinery. RBOB fell ~2% and the crude market reached lows for the day around $91.50 per barrel. WTI crude futures closed at $91.86 per barrel on Friday.
  2. On Monday, crude oil futures rose in early trading as traders factored in additional EU sanctions on Iran that were agreed over the weekend. The EU also froze assets of 34 Iranian entities. Further boosting prices, China announced that its crude oil imports for September increased by over 9% from August. However, the figure is down 1.8% year-on-year. Crude futures began falling, crossing the $90 per barrel mark, as traders focused on weak global demand data from several authoritative sources over the past week, including the International Energy Agency (IEA), OPEC, and the IMF. Continued economic troubles in Europe, weak U.S. demand, and surging U.S. production weighed heavily on prices. However, oil prices rebounded as a German news magazine (Der Spiegel) article described how Iran could potentially block the Strait of Hormuz by creating a large oil spill rather than physically blocking the strait, which is much more difficult to accomplish. Crude futures ended the day at $91.85, down just $0.01 from the previous day’s closing price.
  3. On Tuesday, oil futures rose as Angela Merkel’s governing Christian Democratic coalition in Germany indicated it was softening its opposition to a Spanish bailout. Prices were also supported by Merkel’s comment that Greece has had a “change of thinking” in its opposition to reforms and praised its efforts to bring the debt crisis under control. Later in the day, the U.S. Department of Commerce released its retail sales data showing that retail sales were up 1.1% in September. The news drove up the broader market, pulling crude futures up 0.3% to $92.09 per barrel.
  4. On Wednesday, crude futures trading was muted as market participants awaited fresh data from the Energy Information Administration’s (EIA) weekly oil stocks report. The market began gaining upward momentum as Moody’s retained Spanish debt at investment grade, which traders interpreted as a positive sign for the European economy. In other positive economic news, U.S. housing starts were up 15% in September from August at an annualized rate of 820,000. However, the market tumbled sharply in the 15 minutes following the release of EIA’s oil data. The data showed a bearish rise in oil stocks of 2.86 MMbbl, which is the largest one-week gain for this time of year since the EIA started keeping record in 1982 and well above analysts’ expectations. Crude stocks are currently at 369.2 MMbbl. Oil production was also up slightly at 6.61 MMbbl/d, the highest level since 1995. Gasoline stocks also increased by 1.7 MMbbl, but down 9.1 MMbbl from last year. Distillate stocks fell by 2.2 MMbbl to the lowest pre-winter level in 12 years. Distillate stocks in the Northeast are at their lowest level since the EIA started keeping record of them in 1990.
  5. On Thursday, volumes were light in overnight trading as investors waited for the weekly U.S. unemployment figures from the Department of Labor. Oil prices fell over 1.5% as Labor Department statistics showed that new jobless claims increased by 46,000 last week to 388,000, well above analysts’ expectations. Traders continue to be concerned about low demand as a result of the economic slowdown and burgeoning U.S. production, which is being reflected in rising oil stockpiles. However, crude futures began rising mid-day as TransCanada closed the 590,000 bbl/d Keystone pipeline due to an anomaly discovered on the pipe while “pigging”, which is an in-line inspection tool used to monitor pipeline integrity. The company said that no leaks had been found, but that the pipeline would be closed for three days while the company inspects the line.

Natural Gas Prices

Natural gas futures dropped more than $0.20 per MMBtu early this week due to a mild weather forecast and profit-taking. However, despite a bearish inventory report, futures recovered and closed above $3.50 per MMBtu after meteorologists predicted colder temperatures in the Midwest in early November.

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

  1. Last Friday, U.S. natural gas futures closed higher for the fifth straight day. Cool weather last week and a light gas storage build for this time of year helped push prices up to 10-month highs. MDA EarthSat forecasts normal-to-above-normal temperatures in the key gas-demand centers in the Northeast and Midwest over the next two weeks. Baker Hughes weekly rig data showed that natural gas rigs fell again to a new 13-year low of 422 rigs. However, natural gas production continues to rise as associated gas in liquids-rich shale fields continues to come to market.
  2. On Monday, the National Weather Service’s 6 – 10 day forecast called for above-average temperatures in the Northeast, South, and West of the U.S. The news sent futures lower as traders sought to book profits after last week’s price run-up. Nuclear power plant outages were 24,500 MW (~25%), up from 22,400 MW last year. Futures prices ended the day down 3.5%, closing at $3.49 per MMBtu.
  3. U.S. natural gas futures continued to fall on Tuesday as traders pared back their positions due to the bearish weather forecast and continued profit-taking. Some traders believed that above-average nuclear power plant outages would help support gas prices during the week, but others were concerned that continued prices above $3 per MMBtu could negatively affect demand from power utilities that would shift back to coal. Futures prices closed down 1.4%, at $3.44 per MMBtu.
  4. On Wednesday, natural gas futures traded higher during the day on expectations that EIA’s weekly natural gas storage report on Thursday would be below last year’s 106 bcf for the same week and the 5-year average of 71 bcf. Cool weather this week is expected to have increased gas demand and thus reduced the size of this week’s build. However, the National Weather Service’s 6 – 10 day forecast on Wednesday called for above- average temperatures next week. Should temperatures trend above normal, larger natural gas injections are expected, which would be bearish for the price outlook. Currently, the market is anticipating another record storage build by the end of the season with volumes rising to nearly 4,000 Bcf, a new record.
  5. U.S. natural gas futures trended lower on Thursday after the EIA reported a weekly inventory build-up of 51 Bcf, higher than analysts’ expectation of 48 Bcf, raising total gas storage to 3,776 Bcf. However, futures rebounded in the second-half and closed up 3.4% at $3.59 per MMBtu on forecasts of colder temperatures in the Midwest. MDA EarthSat’s latest update showed colder temperatures in the Midwest and the Northern Plains heading into early November. Nuclear power plant outages were 7,000 MW above last year’s level.

Futures Curve

U.S. Henry Hub natural gas is in “contango” due to cooler weather forecasts and limited storage capacity (current natural gas inventories are ~7% higher than the five-year average). June 2013 natural gas futures are 11% higher than current prices, despite the recent price rally, 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) 14.82 14.75 0.47%
Gasoline Demand (MMBPD) 8.73 8.58 1.65%
Distillate Demand (MMBPD) 3.88 3.82 1.49%
Production (MMBPD) 6.61 6.59 0.12%
Imports (MMBPD) 8.35 8.22 1.53%
Stocks (million barrels) 369.2 366.4 0.76%
Rotary Rig Count 1,411 1,398 0.93%
Natural Gas*
Indicators This Period Prior Period % Change
Consumption (Bcf)* 2,045 (Jul 12) 1,847 (Jun 12) 10.73%
Gross Withdrawals (Bcf)* 2,457 (Jul 12) 2,424 (Jun 12) 1.44%
Canadian Imports (Bcf)* 265.45 (Jul 12) 250.04 (Jun 12) 5.95%
LNG Imports (Bcf)* 15.36 (Jul 12) 8.26 (Jun 12) 86.02%
Working Storage (Bcf) 3,776 3,725 1.37%
Rotary Rig Count 422 437 -3.43%
Horizontal Rig Count 1,112 1,132 -1.77%

Notes:
*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

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