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Weekly Oil & Gas Market Highlights: November 29, 2012

Deloitte Center for Energy Solutions publication

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Key Oil & Gas Price Indicators

Front Month Futures (August) November 29, 2012 November 15, 2012 % Change
Oil – WTI
(USD per barrel)
$88.07 $85.45 3.1%
Oil – Brent
(USD per barrel)
$110.76 $110.98 -0.2%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.65 $3.70 -1.4%

Data sources: Bloomberg; CME Group

Crude Oil Prices

WTI crude oil futures closed 3.1% up in the past two weeks largely driven by heightened tensions between Israel and Hamas in the Middle East. Positive U.S. economic data and an European agreement to reduce Greek debt supported crude prices while concerns related to the U.S. budget exerted downward pressure. 

Closing price; December futures expired on November 16.
Note: Intra-day prices (every 6 hours)
Data source: Bloomberg

  1. On Friday November 16, crude futures rose over 1% as a result of escalating tensions between Israel and Hamas in the Middle East. During the day, Israel increased aerial strikes in the Gaza Strip as Hamas continued rocket attacks on Israeli cities. However, keeping a lid on prices was continued concern about the “fiscal cliff” in the U.S. if a deal is not reached between the Congress and the President. December futures closed at $86.67 per barrel for its final settlement. 
  2. January futures opened up and continued to rise on Monday due to geopolitical tensions in the Middle East. Tensions intensified over the weekend as Israel continued a campaign of airstrikes in response to rocket attacks by Hamas. Further escalating tensions, the International Atomic Energy Agency (IAEA) released a report stating that Iran has increased stockpiles of 20% enriched uranium as well as the number of centrifuges capable of producing such levels of enrichment. As Iran’s nuclear fuel enrichment program strengthens, tensions with the West are likely to rise in the region. Crude futures closed up at $89.28 per barrel.
  3. Futures fell ~3% on Tuesday as Middle East tensions began to subside and the outlook for the European economy remained bearish. Israel announced a temporary “halt” to a ground offensive into Gaza as diplomats from the UN and the U.S. headed to the region. Also bearish for prices was Moody’s downgrade of France’s sovereign debt from AAA to Aa1 while maintaining a negative outlook on the country’s finances. WTI crude futures for January closed at $86.75 per barrel, down $2.53 for the day.
  4. On Wednesday, crude futures seesawed on news from the Middle East. During overnight trading, futures rose as traders became concerned that a ceasefire between Israel and Hamas remained distant. However, later in the day, futures fell as a truce was announced. Crude futures, however, began rising again as news emerged of a bus explosion in Tel Aviv, which traders speculated may have been caused by a terrorist bombing. Trading volumes were thin ahead of the Thanksgiving holiday in the U.S. Futures closed up 63 cents at $87.38 per barrel.
  5. On Thursday, although the market was closed for the Thanksgiving holiday in New York, global trading continued with futures falling marginally. Middle East tensions eased as Israel and Hamas agreed to a ceasefire on Wednesday evening.
  6. On Friday, trading volumes in global trading were low as a result of the U.S. holiday and a public holiday in Japan, a major crude importer. Futures rose along with the broader market as retail sales for Black Friday in the U.S. were brisk. The dollar also weakened against a basket of currencies, which is bullish for crude demand. Despite the ceasefire between Israel and Hamas, the continuing civil war in Syria and tensions in the Persian Gulf maintain a floor under prices.
  7. On Monday, crude futures fell during the day as traders were cautious ahead of a meeting of European finance ministers to discuss the next tranche of money for Greece. During New York trading, NYMEX saw the lightest volumes of 2012 as traders stayed on the sidelines. WTI futures closed down 54 cents at $87.74 per barrel.
  8. Futures began rising in Asian trading on Tuesday as the International Monetary Fund (IMF) reached an agreement with European finance ministers to reduce Greece’s debt to below 124% of its GDP by 2020, a critical requirement for the country to get the next tranche of bailout funds. The agreement includes a reduction of the interest rate the Greek government has to pay on its debt, an extension of the maturity of its debt, and buyback of higher-interest debt. Futures were also supported by rising protests in Egypt after President Mohammad Morsi claimed increased powers until a new assembly has been put in place. In response to the announcement, thousands of protestors demonstrated against the measure in Tahrir Square. Futures began falling, however, during New York trading as the Organization for Economic Cooperation and Development released its semi-annual Economic Outlook report, which predicted a 0.4% contraction in the Eurozone for 2012 and another 0.1% contraction in 2013. Also weighing on prices, further investigation of the Greek debt deal gave rise to speculation that Europe had simply kicked the can further down the road. The news boosted the dollar versus the euro, putting downward pressure on prices.
  9. On Wednesday, crude futures fell in early trading over concerns that U.S. budget negotiations to address the so-called fiscal cliff will fail. Senate Majority Leader Harry Reid said that he was disappointed with the progress of the discussions so far. Crude futures fell more than 2% following the news. However, futures rebounded partially covering the losses in early trading as the Energy Information Administration (EIA), in its weekly oil stocks data, revealed that crude oil inventories fell by nearly 350,000 barrels last week to 374.1 MMbbl. Distillate supplies also declined, falling by 800,000 barrels to 112 MMbbl. However, gasoline stocks rose nearly 4 MMbbl to 204.3 million as gasoline demand fell 5.3% to 8.43 MMbbl/d and total fuel demand in the U.S. dropped nearly 2.5% to 19 MMbbl/d. On the supply side, oil production rose 108,000 bbl/d to 6.82 MMbbl/d—the 12th straight week of output increases and the longest streak of gains since 1990. Futures closed down ~1% at $86.49 per barrel.
  10. On Thursday, crude futures began to rise on positive U.S. economic data and optimism that the U.S. government would be able to avoid the fiscal cliff. Prices rose as the Department of Commerce released data showing that U.S. GDP grew at an annualized rate of 2.7% in the third quarter—more than double the 1.3% annualized growth rate in the second quarter. The data also showed that the U.S. trade deficit narrowed by $2.3 billion in September to $41.5 billion with changing oil flows accounting for most of the reduction. The U.S. paid $32.8 billion in September to import oil and exported $11.2 billion worth of petroleum products mostly to Latin America, leaving an oil trade deficit gap of $21.7 billion. The figure is down ~17% from the same time last year when the oil deficit was $26.3 billion. In addition to exports offsetting imports, U.S. crude production has increased 20% over the past five years as a result of the shale boom, which has lowered overall import demand. Separately, the U.S. Department of Commerce announced that new applications for unemployment fell by 23,000 to 393,000 last week. The National Association of Realtors reported that new-home construction rose 3.6% in October and pending home re-sales were up by 5.2%. Crude futures rose on the news. In Washington, Speaker of the House John Boehner indicated that budget talks could avert a fiscal cliff while President Obama signaled that he might moderate on revenue increases by allowing taxes to increase for those earning over $250,000 per year, but not as high as they were during the Clinton era. WTI crude futures closed at $88.07 per barrel, up ~2%.

Natural Gas Prices

Henry Hub natural gas futures rose during the first half of the two-week period due to higher drawdowns from inventories. However, the prices changed course in the second week to close down 1.5% at $3.648 per MMBtu due to forecasts of a milder winter in the U.S. and inventory build following the Thanksgiving holiday.

Closing price; December futures expired on November 28.
Note: Intra-day prices (every 6 hours)
Data source: Bloomberg

  1. On Friday November 16, natural gas futures rose as the injection season came to a close. The EIA’s weekly natural gas report released on Thursday showed the first draw of the year (18 Bcf). Traders expect to see further drawdowns of natural gas stocks as the country enters the heating season. However, bears are eyeing gas inventories coming off a new all-time high of 3,929 Bcf and National Oceanic and Atmospheric Administration (NOAA) forecasts showing above-average temperatures in both the 6-10 and 8-14 day forecasts, both of which exerted downward pressure on prices.
  2. On Monday, natural gas futures fell 7.1 cents to close at $3.719 per MMBtu. Prices fell as National Weather Service forecasts continued to call for above-average temperatures in much of the country over both forecast periods. Traders began to pare back their estimates for this week’s drawdown of natural gas stocks in EIA’s weekly data. Meanwhile, analysts predicted a build in natural gas stocks the following week due to the Thanksgiving holiday (the EIA reports its data one week in arrears).
  3. Natural gas futures rose on Tuesday to close at $3.832 per MMBtu, up 11.3 cents during the day. Much of the run-up in price was driven by the release of the Weather Service International’s (WSI) December–February forecast showing below-average temperatures for much of the northern part of the country, particularly in the Rockies and northern Plains states. However, above-average temperatures were forecast for much of the southern U.S., particularly the southwest. With expectations of colder weather on the way, traders were buying up contracts ahead of EIA’s early release of its natural gas report on Wednesday, which was moved up due to the Thanksgiving holiday.
  4. On Wednesday, natural gas futures extended their Tuesday rally as the National Weather Service revised its 6-10 day forecast to show below-average temperatures covering the northwest and much of the eastern U.S. The revised 8-14 day forecast showed above-average temperatures only in the west and southwest region. Futures rose higher following EIA’s early release of its weekly natural gas data, which showed a larger-than-expected gas withdrawal. Natural gas inventories fell 38 Bcf to 3,873 Bcf, which far exceeded last year’s 9 Bcf drawdown during the same week and the five-year average draw of just 3 Bcf. Natural gas prices closed at a one-year high of $3.903 per MMBtu.
  5. On Thursday, trading volumes were thin as the trading floor was closed for the Thanksgiving holiday in the U.S. Henry Hub futures in pre-open electronic trading closed marginally up at $3.912 per MMBtu.
  6. Natural gas futures were nearly unchanged during a shortened trading session with light volumes on Friday. Prices fell by around 1 cent to close at $3.901 per MMBtu.
  7. Natural gas futures fell sharply on Monday to $3.730 per MMBtu, down 17.1 cents (4.4%), driven by private weather forecasts showing above-average temperatures in the 6-10 day forecast. MDA Earthstat’s map showed above-average temperatures covering most of the country and WSI forecast “unseasonably mild” temperatures over the period. Traders expect this week’s EIA gas inventory report to show a build as a result of reduced commercial and industrial demand during the Thanksgiving holiday the prior week.
  8. Henry Hub natural gas futures ended Tuesday at $3.769 per MMBtu, up 1%, after a seesaw session. Many traders were closing out positions ahead of the Wednesday expiration of the December contract.
  9. On Wednesday, natural gas futures for December delivery fell 7.3 cents to close and expire at $3.696 per MMBtu. The January contract, which moved into the front-month position, closed down 9.1 cents at $3.801 per MMBtu. Prices fell throughout the day as weather forecasters continue to foresee above-average temperatures across much of the country in the 6-10 day forecast.
  10. On Thursday, natural gas futures for January delivery fell as the EIA released its weekly natural gas inventory report, which showed a 4 Bcf build for the prior week to 3,877 Bcf. The build was slightly higher than last year’s build of 2 Bcf during the same week, but lower than the five-year average build of 18 Bcf. With inventory rising and expectations of warmer-than-average temperatures over the next few weeks, natural gas futures fell 1.3% to close at $3.648 per MMBtu.

Futures Curve

The U.S. Henry Hub natural gas futures curve is “out of contango” as peak heating demand approaches. Current natural gas inventories are ~5% higher than the five-year average.  August 2013 natural gas futures are~ 4% higher than current prices, compared to 3.6% for oil.

Data source: Factset

Weekly U.S. Crude Oil and Natural Gas Data

Crude Oil
Indicators This Period Prior Period* % Change
Refinery Inputs (MMBPD) 15.17 14.61 3.85%
Gasoline Demand (MMBPD) 8.43 8.91 -5.40%
Distillate Demand (MMBPD) 3.84 4.11 -6.55%
Production (MMBPD) 6.82 6.71 1.62%
Imports (MMBPD) 8.12 7.87 3.15%
Stocks (million barrels) 374.1 375.9 -0.48%
Rotary Rig Count 1,388 1,373 1.09%
Natural Gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,877 3,873 0.10%
Rotary Rig Count 428 424 0.94%
Horizontal Rig Count 1,114 1,105 0.81%
Consumption (Bcf)** 1,982 (Aug 12) 2,051 (Jul 12) -3.38%
Gross Withdrawals (Bcf)** 2,374 (Aug 12) 2,459 (Jul 12) -3.45%
Canadian Imports (Bcf)** 262 (Aug 12) 265 (Jul 12) -1.23%
LNG Imports (Bcf)** 19.1 (Aug 12) 15.4 (Jul 12) 24.37%

Notes:
* The “Prior Period” data is the data last reported by Deloitte’s Oil and Gas Market Highlights Report on November, 14 before the week of the Thanksgiving holiday.
**The EIA does not provide weekly natural gas consumption, withdrawal, and import numbers.  Thus, the latest available monthly numbers are reported above.
Data source: U.S. Energy Information Administration (EIA)

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