Weekly Oil & Gas Market Highlights: October 20, 2011 Deloitte Center for Energy Solutions publication

Sign up to receive the weekly Oil & Gas Market Highlights Memo

Key Oil & Gas price indicators for the prior seven days

Data sources: Bloomberg; CME Group

Oil & Gas Highlights

• NYMEX crude futures for November ended lower on Thursday, October 20 over concerns of weak demand and continuing uncertainty about the European debt crisis.  After profit taking last Friday, the market continued a rally through the week with the Brent premium over WTI reaching a record high of $28.07 per barrel on Tuesday.  The Department of Commerce’s retail sales data showed an increase of 1.1% over August, which was higher than expected.  However, by the close of Wednesday, futures surrendered most of the week’s gain and remained relatively flat on Thursday.  News of Moammer Qaddafi’s death may signal the end of the country’s civil war and a beginning of work toward restoring pre-conflict production levels.  The market has maintained a focus on macroeconomic conditions and has broadly been following equities.  Several reports related to China’s economy were released during the week with China’s Consumer Price Index up 6.1%, slightly lower than the 6.2% the month before, while the Producer Price Index was up 6.8% month on month below expectations.  China’s September crude imports were down 12.2% from last year.  China’s GDP growth slowed to 9.1% in the third quarter below its second quarter growth of 9.5% and first quarter growth of 9.7%.  As a result, the People’s Bank of China is not expected to raise interest rates.

  • U.S. crude oil inventories were down 1.4% to 332.9 MMbbl and down 7.8% year on year.  Distillate stocks declined to 149.7 MMbbl, down 2.8%, the largest one week drop since September 19, 2008 and down 11.9% from last year’s levels.   The price of regular gasoline rose to $3.48 per gallon the first rise in five weeks and $0.64 higher than last year.  The national average diesel fuel price also increased to $3.80 per gallon, $0.73 per gallon above the price last year. Residential heating oil increased by $0.09 per gallon to $3.77, an $0.80 increase year on year.  Propane prices inched up $0.02 per gallon to $2.80.
• The Commodity Futures Trading Commission (CFTC) voted 3-2 along party lines to limit trading in over-the-counter commodity swaps and exchange traded funds by limiting the number of contracts a single firm can hold as part of the new CFTC jurisdiction over the U.S. derivatives market granted under the Dodd-Frank financial overhaul.  The new regulation limits traders to 25% of the deliverable supply in the spot-month of 28 different commodities including NYMEX Light Sweet Crude Oil, NYMEX Henry Hub Natural Gas, NYMEX New York Harbor Gasoline Blendstock, and NYMEX New York Harbor Heating Oil among others.  The limit applies separately to the market for physical delivery at the Chicago Mercantile Exchange and to the cash-settlement market at the Intercontinental Exchange in Atlanta.  The rule does not limit how much of any particular commodity market speculators can own in aggregate.  Deliverable supply will be determined by the CFTC in discussion with the exchanges.  For cash-settled natural gas contracts, however, traders will be allowed to hold 125% delivery supply in Henry Hub swaps because of the greater liquidity in that market.  Outside the spot month, the new caps would limit traders to 10% of the first 25,000 contracts of open interest and 2.5% thereafter.  The regulation would also tighten exemptions for “bona fide” hedgers to exceed the caps.  The CFTC estimates this new rule will affect 85 current energy traders.  The rule will go into effect 60 days after the CFTC defines the word “swap”.  House Republicans are working on 7 bills that would limit the CFTC’s new Dodd-Frank authority, but the Senate Democrats have said the bills will not reach the Senate floor.
• Since the tsunami in Japan in March, the Japan Atomic Energy Agency reports that 44 of 54 nuclear power plants are shut down for a total of 40,276 MW offline with only 8,684 MW of nuclear power remaining online.  Nuclear power is largely being swapped for natural gas power, but some liquid fuels are also in use.  Japan’s average daily liquid fuel consumption is up year on year.  The Federation of Electric Power Companies of Japan reported LNG consumption was up 31% in June over the prior year and up 23% over the prior year in July.  LNG imports reached a five-year high of 7.1 million tons.
  • Oil consumption declined 10% from February to March with May consumption down one MMbbls from February.  However, oil consumption grew 660,000 bbls/d from May to August.
  • Six refineries, or ~30% of Japan’s refining capacity, was shut down in the aftermath of the tsunami.  Most are now at pre-tsunami levels with the 145,000 bbl/d refinery at Sendai where there was a major fire still offline.

Natural Gas Highlights

• The Henry Hub spot price rose to $3.58 per MMBtu on October 19 and the near-month (November 2011) futures contract rose to $3.586 per MMBtu.  Working natural gas in storage rose 103 Bcf from last week to 3,624 Bcf.  The rapidly growing stocks continued even during a period of warmer temperatures across the country with a national average temperature of 63.1 degrees, which is 4.1 degrees warmer than normal and 0.7 percent warmer than a year ago.  However, temperatures dipped in Texas and the Southeast, which resulted in a 2.9% decline in power burn over the week.  The shoulder season continues to see inventory builds as a result of high production and large injections.
  • The natural gas rotary rig count increased by only 1 rig to 936 after two weeks of double-digit rises.
  • Canadian imports of natural gas increased 4.1% averaging 5.6 billion cubic feet per day.  LNG imports averaged 641 MMcf/day an increase of 22.2 percent.

Comments and questions welcomed. Please contact DeloitteCenterforEnergySolutions@deloitte.com

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.

Save these dates!

November 22, 2011
Shale Gas: Leveraging This Boom to the U.S. Economy – Dbrief Register Now!

December 15, 2011
Deloitte Oil & Gas Conference – Houston, TX
For more information on the 2011 Deloitte Oil & Gas Conference please contact OilandGasConference@deloitte.com

About the Deloitte Center for Energy Solutions
The Deloitte Center for Energy Solutions provides a forum for innovation, thought leadership, groundbreaking research, and industry collaboration to help companies solve the most complex energy challenges.

Through the Center, Deloitte’s Energy & Resources Group leads the debate on critical topics on the minds of executives—from the impact of legislative and regulatory policy, to operational efficiency, to sustainable and profitable growth. We provide comprehensive solutions through a global network of specialists and thought leaders.

With locations in Houston and Washington, D.C., the Deloitte Center for Energy Solutions offers interaction through seminars, roundtables and other forms of engagement, where established and growing companies can come together to learn, discuss and debate. www.deloitte.com/energysolutions.

As used in this document, ‘Deloitte’ means Deloitte LLP (and its subsidiaries). Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.