Weekly Oil & Gas Market Highlights: March 1, 2012 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

• NYMEX WTI crude futures for April spent most of the week trending down on bearish fundamentals and concerns that high gasoline prices may slow an economic recovery struggling to gain momentum.  However, mid-afternoon news on Thursday March 1 of a pipeline explosion in the troubled city of Awamiyah in Saudi Arabia’s oil-rich eastern region sent prices spiking above $110 a barrel.
• Crude futures prices continued to push upward last Friday driven by the momentum of positive economic news.  Futures prices received support from a strengthening euro, which rose above 1.345 to the dollar for the first time in three months.  During the day, futures prices were narrowly confined above $108 per barrel as market traders were concerned about the impact of higher gasoline prices on the economic recovery in the U.S., but saw support for current prices in the tensions between Iran and the West.  As futures prices moved sideways, the U.N.’s International Atomic Energy Agency (IAEA) released a report that Iran tripled its uranium enrichment capacity, doubled its 20 per cent enrichment centrifuges, and fortified its underground nuclear site at Fordo, Iran.  The news sent futures prices closing in on $110 per barrel before settling at $109.77 a barrel.  Futures prices rose 6.3% in last week’s trading and have risen 11% in February thus far.
• Crude futures fell on Monday in early Asian trading as market participants sought to realize profits from last week’s gains.  Many traders believe that crude futures are currently overbought, particularly Brent futures that are hovering around $125 a barrel.   However, any selloff is likely to be muted as tensions continue to roil in the Middle East  The United States Organization for Economic Cooperation and Development and Brazil urged an increase in financing for European countries, while the OECD advocated funding an  additional $1.5 trillion.  G20 finance officials expressed optimism that the U.S. would be able to sufficiently water-down the so-called Volcker rule that would prohibit U.S. banks from owning or investing in hedge funds and private equity funds as well as limiting the types of liabilities banks could own.   Foreign governments believe that this limits the ability of U.S. banks to invest in non-U.S. debt at a time when they need access to credit markets.  Limiting the application of the rule is seen as having a positive effect on the global economy and is thus supportive of crude prices.  On Monday, speculators increased their long positions by 17% to ~$24 billion dollars in value.  Washington law makers have raised the issue of a potential release of oil from the U.S. strategic petroleum reserve, intended for national emergencies, as a means of adjusting the market price of oil.
• In Tuesday trading, futures prices tumbled 1.9% to close at $106.55 per barrel as a clouded economic outlook was revealed in recent data.  The U.S. Commerce Department reported that orders for 3-year durable goods declined by 4% in January, well below analyst expectations of a more modest 1.1% decline.  Also casting a pall over the economic outlook was Standard and Poor’s Case-Shiller home-price index, which showed home prices also fell by nearly 4% in December to the lowest levels since 2006.  High gasoline prices have also taken a toll on the economy and dampened overall demand.  Gasoline demand is currently hovering around 10-year lows.  As the end of winter approaches and the weather begins to warm, refineries will enter their regular spring maintenance, which will temporarily ease demand ahead of the summer driving season.
• Wednesday crude futures tried to rally on positive economic news from Asia.  Japan’s Ministry of Economy, Trade and Industry reported that industrial output increased 2% in January, the second-straight monthly gain, and above analyst expectations.  South Korea’s industrial production also increased in January rising 3.3% from December after three straight months of declines.  However, data from the Energy Information Agency sent prices tumbling to $104.84 a barrel briefly as the data showed that oil stock rose by 4.2 million barrels last week, much larger than forecast.  Refinery activity decline nearly 2% to 83.6% of capacity as the industry enters the spring maintenance season.  Gasoline stockpiles declined last week by 1.6 million barrels even as some analysts are concerned about the potential for demand destruction from current high prices.  In late day trading bulls pushed the price of oil over the $107 a barrel mark to close at $107.07 on the day.
• On Thursday futures prices gained on news from China’s Federation of Logistics and Purchasing that the manufacturing index increased to 51.0 in February from 50.5 in January.  Putting downward pressure on prices was news that OPEC production increased by 255,000 barrels in February to 31.3 MMbbl/d from 30.8 MMbbl/d in January, the highest level of production since November 2008.  Saudi Arabia has doubled the amount of oil drilling rigs in the country since last year according to Baker Hughes Inc.  The country is positioning itself to make up for as much displaced Iranian supplies as possible in case of increased tensions or supply disruptions resulting from the dispute between the West and Iran over its nuclear program.  However, prices skyrocketed on news of a pipeline explosion in the city of Awamiyah in Saudi Arabia’s oil-rich eastern part of the country. WTI futures crossed the $110 per barrel mark before closing at $108.84.
  • EIA reported NYMEX crude futures climbed $6.53 last week closing at $109.77 a barrel on February 24 even as crude stocks rose by 4.2 million barrels to 344.9 million.  Stocks are 1.5 million barrels lower than a year ago.
  • The average retail gasoline price was up $0.13 for the week to $3.72 a gallon.  Prices were up $0.33 over last year.  Gasoline stocks fell by 1.6 million barrels to 229.9 million barrels, which is down 4.8 million barrels from the same time last year.
  • The average retail diesel price was up by $0.09 to $4.05 a gallon, up $0.335 from a year ago.
  • Residential heating oil was up $0.064 last week to $4.108 per gallon, $0.353 higher than a year ago.
  • The retail propane price rose half a penny to $2.87 per gallon, which is $0.01 higher than a year ago.

Natural Gas highlights

• EIA reported Henry Hub spot prices fell $0.16 last week to $2.44 per MMBtu as consumption fell across the board last week.  Temperatures for the week ending February 23 were 4.4 degrees warmer than the 30-year average and 1.1 degrees warmer than a year ago.
• Domestic Natural Gas production increased 1% last week to 63.7 Bcf/d up 8.6% year on year.  Imports of LNG from Canada also increased 5.5% averaging 5.4 Bcf/d, down 1.8% from last year.  The natural gas rotary rig count fell by 6 rigs to 710.  Oil-directed rigs fell 7 to 1,265.
• Working natural gas in storage fell 82 Bcf to 2,513 Bcf, which is 756 Bcf higher than last year.
• Natural Gas consumption was down 1.61%, but up 0.2% year on year.  The Residential and Commercial sector led the decline with a 2.61% drop, down 13.48% from last year.  However, the power sector was down just 0.51%, but up 33.48% from 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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