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Weekly Oil & Gas Market Highlights: May 3, 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, 5/3/12 Noon (EDT) on Thursday, 4/26/12
Front-Month NYMEX Light, Sweet Crude Oil (“WTI”) Futures $102.88 (June-2012 Contract) $104.64 (June-2012 Contract)
WTI Cushing Spot $102.91 $104.65
Dated Brent Spot $116.33 $119.80
Natural gas, USD per MMBtu Noon (EDT) on Thursday, 5/3/12 Noon (EDT) on Thursday, 4/26/12
Front-Month NYMEX Henry Hub Futures $2.36 (June-2012 Contract) $2.10 (June-2012 Contract)
Henry Hub Spot $2.31 $2.00

Data sources: Bloomberg; CME Group

Oil & Gas highlights

  • NYMEX WTI crude futures for June ended the week down as futures prices tumbled on bearish stockpile builds in the U.S. and news of economic hardship spreading across Europe.  A declining outlook for the European economy overwhelmed positive news from the U.S. and Chinese economies, the world’s largest purchasers of oil, as European Central Bank President Mario Draghi’s comments on Thursday led to a collapse of >2.5% in the futures price.
  • Last Friday, crude prices fell in Asia on concerns about the euro zone debt crisis in the wake of Standard and Poor’s downward revision of Spain’s credit rating.  Crude futures dipped briefly on news that U.S. first quarter growth was 2.2% below analyst expectations of 2.6% growth.  The U.S. Department of Labor reported that jobless claims fell to 388,000 from a revised 389,000 the week before.  In the afternoon the Energy Information Administration (EIA) released a revision to the oil stocks data it published the day before, which showed that demand was stronger than reported earlier.  Although oil demand did decline, the decline was only 0.7% or 135,000 barrels. Similarly, gasoline demand averaged 8.622 million barrels a day, which is a 0.3% year-on-year decline instead of the 3.6% decline reported the day before.  Demand for distillates including diesel was up 2.1% from a year earlier, which is the highest level of demand since before the current recession.  Crude futures closed at $104.93 per barrel on Friday up $0.38 for the day.
  • Futures fell on Monday trading, on news that the Spanish economy contracted for the past two quarters, which indicates that the Spanish economy is in a recession.  Meanwhile oil production continues to grow, driven by shale oil in the U.S., increasing production in Saudi Arabia and Russia, and a return of Libyan supplies to the international market.  Analysts are focused on the demand side to see if demand can keep up with supply.  The geopolitical risk premium over the tensions between Iran and the West has declined as the dispute moved to the back burner following the summit in Istanbul in mid-April.  Crude futures rallied mid-day driven by an improving economic outlook for the U.S.  Household consumption grew 2.3% in the first quarter of the year, which is higher than the 2.1% growth in the first quarter.  NYMEX WTI futures closed down $0.06 at $104.87 on Monday.
  • Asian trading volumes were down Tuesday due to the May 1 holidays.  Positive economic news emerged out of China as it was reported that the Purchasing Manager’s Index (PMI) rose to 53.3 in April, up from 53.1 in March.  However, the figure was still slightly below analyst expectations.  The dollar has also been falling versus the euro, which boosts dollar-denominated crude prices.  In New York trading crude futures surged on news that the U.S. PMI also rose in April.  The U.S. figures were 54.8 for April, which was up from 53.4 in March.   As the price of WTI climbed, the Brent/WTI spread narrowed and fell below $14 for the first time since the first month of the year.  Crude futures settled at $106.16, up 1.2%, on the NYMEX at the end of trading.
  • On Wednesday, crude futures were lower in Asia as the dollar rebounded versus the euro.  However, volumes were light ahead of the release of EIA’s weekly oil stocks data.  Futures prices continued to fall as more weak economic news about the 17-nation Eurozone economies was released.  Unemployment in the Eurozone climbed by 0.1% to 10.9 in March from 10.8 in February, which is the highest level of unemployment since April 1997 according to data maintained by Bloomberg.  The number of unemployed in Europe rose to 17.4 million up 1.7 million from March and the highest level since the EU started keeping records in 1995.  As a result, Germany’s bond yields hit new lows as investors sought safe havens for investment and yields on Italian and Spanish bonds inched up.   The euro fell against the dollar on the news, which put further pressure on prices.  The only nation to show growth in the first quarter was Belgium, which had GDP growth of 0.3%.  In the U.S., ADP reported that 119,000 jobs were added to the U.S. economy last month, which was below analyst expectations.
  • When EIA released its weekly oil stocks report on Wednesday, futures prices continued their fall.  U.S. crude stocks rose 2.84 million barrels last week while stocks at Cushing, Oklahoma rose 1.2 million barrels to their highest levels ever just under 43 million barrels.  Crude stocks have been building at Cushing ahead of the Seaway pipeline reversal, which will bring lower-priced crude supplies to the Gulf Coast.  Nationally crude stocks are at 375.9 million barrels, their highest level since September 1990. News of the reversal has lowered the price of Brent by ~$6 per barrel on expectations of increased competition from the largest refining hub in the U.S.  Gasoline stocks also fell by 2 million barrels during the past week.
  • Crude futures plummeted ~2.6% on Thursday as the President of the European Central Bank (ECB) Mario Draghi said that the Eurozone’s economic outlook was now “more uncertain”.  The ECB still believes that there will be a recovery this year, but that it would be more gradual than initially predicted.  Crude fell to just above $102.50 on the news.  Draghi also stated that inflation is likely to remain above 2% through 2012, but he did not make any comments on the recently released GDP, PMI or unemployment figures for the Eurozone.
    • The EIA reported NYMEX crude futures prices closed up $1.88 last week at $104.93 down $9.00 year-on-year.  Crude stocks recent large builds rising 2.8 MMbbl to 375.9 million barrels.  Stocks are 9.3 million barrels higher than a year ago.
    • The average retail gasoline price fell $0.04 last week to $3.83 a gallon.  Prices were down $0.13 over last year.  Gasoline stocks fell 2.0 MMbbl to 209.7 million barrels, which is up 5.2 MMbbl from the same time last year.
    • The average retail diesel price fell $0.01 to $4.07 a gallon.
    • Distillate stocks were down by 1.9 million barrels to 124 million barrels and down 21.1 million barrels year-on-year.

Natural Gas highlights

  • The EIA reported Henry Hub spot prices rose 32 cents last week to $2.31 per MMBtu.  The NYMEX gas futures price was up 8.3 cents to $2.25 per MMBtu.  Temperatures were 1.2 degrees above the 30-year average and down 1.7 degrees year on year.
  • The domestic natural gas supply was up 0.1% last week, while dry gas production was down 0.1% to 63.9 Bcf/d, which is up 5.2% year on year.  U.S. gas imports from Canada were up 3.8% at 5.3 Bcf/d, but were down 0.8% from last year.  The natural gas rotary rig count fell 18 rigs to 613.  Oil-directed rigs were down by 9 to 1,328.
  • Working natural gas in storage was up 28 Bcf to 2,576 Bcf, which is 840 Bcf higher than a year ago.
  • Domestic natural gas consumption rose 0.6% percent from the previous week with the power sector rising 6.1%.  Demand from the residential/commercial sector was down 4.8% and industrial sector demand was down 0.8%.  The average temperature in the lower 48 states was 56.6 degrees.

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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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