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Weekly Oil & Gas Market Highlights: May 24, 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, 5/24/12 Noon (EDT) on Thursday, 5/17/12
Front-Month NYMEX Light, Sweet Crude Oil (“WTI”) Futures $90.99 (June-2012 Contract) $92.92 (June-2012 Contract)
WTI Cushing Spot $90.92 $92.77
Dated Brent Spot $107.34 $109.36
Natural gas, USD per MMBtu Noon (EDT) on Thursday, 5/24/12 Noon (EDT) on Thursday, 5/17/12
Front-Month NYMEX Henry Hub Futures $2.71 (June-2012 Contract) $2.53 (June-2012 Contract)
Henry Hub Spot $2.60 $2.50

Data sources: Bloomberg; CME Group

Oil & Gas highlights

  • NYMEX WTI crude futures for June continued their downward trend as Greece concerns weighed heavily on the market and the six-party talks in Baghdad took most of the geopolitical risk premium out of futures prices.
  • On Friday, WTI futures fell below support at $92.50 as traders worried about a possible exit of Greece from the euro zone. Brent fell by $1.00 as Moody's downgraded 16 Spanish banks renewing concerns about European crude demand. Fitch also downgraded Greece's credit rating two notches to junk bond grade, further pressuring the country to leave the euro. Some analysts fear that a breakup of the euro zone could lead to a price collapse in futures prices for Brent into the $60 range. As uncertainty continues in the EU, the U.S. dollar continues to appreciate, which is bearish for dollar-denominated crude demand. At current exchange rates, crude is 10% higher in euros than last year, while the oil price is below last year’s price in dollars. At the close of trading on Friday, futures prices settled at $91.08 per barrel, the lowest level since October 26 of last year. Brent futures closed at $107.44, down 0.3% in Friday trading.
  • On Monday, futures prices reversed their downward trend and began to climb as Chinese Premier Wen Jiabao said over the weekend that the country may engage in additional monetary easing to avoid an economic slowdown. Such a move would be bullish for crude demand in that country. Crude edged up higher as Iran prepared for talks with the five permanent U.N. Security Council members and Germany on Wednesday. Yukiya Amano, the head of the International Atomic Energy Agency (IAEA), arrived in Iran on Monday. Oil futures also received a boost from news out of Greece over the weekend that Greece's New Democracy party might be able to form a government ahead of the June 17 elections. Such a government is more likely to meet the EU terms required to remain in the euro zone. During a G-8 meeting over the weekend, leaders did not come to agreement about how to resolve the continuing economic crisis in Europe with the U.S. pressuring Germany to ease up on so-called "austerity" measures. However, G-8 members were able to find common ground with a joint statement that Greece should remain in the euro. Crude futures ended a six-day decline on Monday as WTI futures settled at $92.57 per barrel up $1.09 on the day.
  • Crude futures began the day higher on Tuesday as traders viewed the euro-zone summit positively. However, futures began to fall on Tuesday as Fitch Ratings downgraded Japan's sovereign debt to A+ and set the outlook to negative. The news also bolstered the dollar with the ICE Dollar Index up 0.3% to 81.280. As market participants awaited the outcome of the six-party talks with Iran in Baghdad on Wednesday, no large market moves were expected. The IAEA announced a nuclear agreement with Iran, which signaled further cooperation between the U.N. and Iran. Yukiya Amano stated that the two parties had reached an agreement for the IAEA to investigate attempts by Iran to build a nuclear weapon, but no agreement had yet been signed. Futures prices slid ~1% on the news. The news of the agreement was met with a degree of skepticism by the White House, which stated that they would respond to positive action, not words. The OECD put a damper on futures as the organization announced that it expects a 0.1% contraction in euro zone economies this year and a meager 0.9% growth in 2013. WTI futures settled down $0.91 at $91.66 per barrel and Brent was down $0.40 at $108.41 per barrel.
  • On Wednesday, crude futures tumbled ~1% along with the broader market and the euro following the announcement by the Greek Prime Minister that the country is considering preparations for an exit from the euro. The news sent the euro to its lowest level against the dollar since July 2010, which further fueled futures selling. Meanwhile the dollar rose versus the euro. The six-party talks with Iran in Baghdad have also taken the geopolitical risk factor out of prices in recent days. Geopolitical risk factors, however, may come back to the fore as the July 1 deadline approaches for Western-backed oil sanctions on Iran. During the day, prices fell to a six-month low of $90.71 in mid-day trading. The Energy Information Agency (EIA) reported that crude oil stocks rose 883,000 barrels to 382.5 million barrels, the highest level since August 1990. Over the past nine weeks, crude stocks have risen 10.5%. Some of the stockpiles were being positioned in Cushing ahead of the Seaway pipeline reversal, which officially began last weekend.
  • Oil prices began to climb in Thursday trading as the Chinese government announced on its website that the country would work proactively to take measures that would provide for stable and fast economic growth. Futures were up just under 1.5% on the news. However, prices began to fall when the Ifo Institute announced that German business confidence had fallen from 109.9 to 106.9 in April, the steepest decline since last August. Crude futures reached as low as $89.92 a barrel during London trading. EU leaders urged Greece to stand firm on budget cuts and remain in the euro zone. Six-party talks in Baghdad ended with a promise for further talks in Geneva in three-weeks. Prices rose just under 2% as the leader emerged from the discussions with no binding pledges from Iran, igniting concerns of an Israeli attack.
    • The EIA reported NYMEX WTI crude futures prices fell $4.65 last week to $91.48 per barrel. Crude stocks climbed just under a million barrels to 382.5 million barrels. Stocks are 11.9 million barrels higher than a year ago.
    • The average retail gasoline price fell $0.04 last week to $3.74 a gallon while gasoline stocks fell 3.3 MMbbl to 201 million barrels, which is down 8.7 MMbbl from last year.
    • The average retail diesel price was $3.95 per gallon down $0.048.
    • Distillate stocks were down by a third of a million barrels to 119.5 million barrels, down 21.6 million barrels year on year.

Natural Gas highlights

  • The EIA reported Henry Hub spot price was up $0.10 over the past week to close at $2.60 per MMBtu. The NYMEX June 2012 natural gas futures contract closed up 11.9 cents (4.5%) to $2.737 per MMBtu. The average temperature in the lower 48 States was 64.3 degrees, 2.6 degrees above the 30-year average and up 4.9 degrees year on year.
  • The domestic natural gas supply rose slightly by 0.2% last week. The natural gas rotary rig count rose by two rigs to 600. Oil-directed rigs were up by 10 to 1,382.
  • Working natural gas in storage increased 77 Bcf to 2,744 Bcf, which is up 750 Bcf (38%) over last year.
  • Domestic natural gas consumption declined slightly by 0.9% from the previous week with the residential and commercial sector falling 9.1% and the industrial sector was down 0.8%. Power sector demand was up 3.5% led by increased power burn in Texas.

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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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