Weekly Oil & Gas Market Highlights: November 17, 2011 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

• Over the past week, NYMEX futures struggled to get over the psychologically important $100 per barrel mark, which it finally achieved on Wednesday. Last Friday’s trading extended Thursday gains as the Italian Senate passed a budget bill setting firm fiscal targets. Markets responded positively to the news with the interest rate on 10-year Italian government bonds falling below 7% to 6.63% on expectations that Berlusconi may soon step down if the measure is approved by the lower house. There was continued economic optimism that a Mario Monti candidacy for Italian Premiership might succeed Berlusconi and be able to affect a reigning in of government spending. A simultaneous weakening of the dollar versus the euro fueled speculation that oil futures could hit $100 per barrel in trading the following week. On Monday, futures made a run for $100, but fell back to $99.69 on profit taking ahead of the expiration of the December contract on Friday, November 18. The December contract fell below the price of the January contract ending the bullish signal that had been sent at the end of October by backwardation in the market. The market made another attempt for $100 on Tuesday following modestly positive news of 0.2% third quarter growth in the European economy over the second quarter, which was 1.4% high than a year ago. However, European debt markets continued to adjust as investors bought up German bonds as a safe haven, which sent yields on French and Spanish bonds to new records versus German debt yields. The market rebounded on news from the U.S. Department of Labor that wholesale prices were down easing inflation fears and the U.S. Department of Commerce announced a modest rise in retail prices by 0.5% in October over September. Although traders bought into the market on these signals, they were not able to push prices to the $100 mark over a wave of selling ahead of the expiration of the December contract. Wednesday’s news of the reversal of the Seaway pipeline that would send 150,000 barrels/day of oil from Cushing, OK to the Gulf Coast by the second quarter of 2012 proved to be the tonic that finally pushed futures above the $100 mark. The pipeline would eventually bring 400,000 barrels/day to the Gulf from Cushing where excess supplies have weighed heavily on the WTI price. News of the pipeline reversal drowned out the Energy Information Admiration’s announcement that crude stock fell by 1.056 million barrels last week.
  • The average retail gasoline increased $0.01 to $3.44 per gallon, which is $0.54 higher than one year ago. Gasoline stocks were up 1 million barrels to 205.2 million barrels.
  • The national average retail diesel price gained $0.10 raising the price to $3.99, $0.80 higher than one year ago.
  • Residential heating oil rose $0.07 cents per gallon to $3.94, which was $0.82 cents above last year’s price.
  • The residential propane price inched up slightly by $0.007 to $2.83 per gallon while propane inventories fell 0.572 million barrels to 59.62 million barrels, which is down 5.156 million barrels from a year ago.
• Following last week’s announcement by the Obama administration that there would not be a decision on the KeystoneXL pipeline until after the 2012 election, Enbridge announced that it was buying ConocoPhillips 50% stake in the Seaway pipeline for $1.15 billion. During the announcement, Enbridge said it would reverse the direction of the pipeline so that it would flow from Cushing, OK to Freeport, TX on the Gulf Coast. The deal would relieve the excess crude supplies at Cushing that has driven down the price of WTI as a result of the increased oil flows from Canadian oil sands. A gap has opened between the price of Brent and WTI as a result of the supply glut at Cushing and rising Brent over the turmoil in the Middle East and the civil war in Libya. Canadian producers have been seeking a pipeline to transport 1.5 million barrels/day of oil from oil sands to the Gulf. By 2025, the volume of oil from Canada is expected to increase to 3.7 million barrels per day. The reversed Seaway pipeline would transport 150,000 barrels per day to the Gulf by the second quarter of 2012 and increase to more than 400,000 barrels per day by 2013.

Natural Gas highlights

• The Henry Hub spot price dropped $0.44 per MMBtu to $3.11 during the week. Mild temperatures during the week led a 2.4 percent decline in domestic gas consumption. Residential and Commercial demand dropped by 5.3% while demand from the power sector dropped 1.2% as a result of the mild temperatures reducing overall weather-related demand. The Industrial sector posted a mild rise of 0.4 percent.
• The natural gas rotary rig count dropped by 30 to 877 active units. Natural gas production was down 0.5% averaging 63.5 Bcf, which is 8.4% above last year. The decline was partly offset by an increase in Canadian gas imports which averaged 4.7Bcf during the week.
• NYMEX near-term futures were down 30.8 cents to $3.344 per MMBtu. Working natural gas in storage rose by 19 Bcf to a record 3,850 as of November 11 exerting heavy downward pressure on the futures price.

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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.

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