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Weekly Oil & Gas Market Highlights: July 12, 2012

Deloitte Center for Energy Solutions publication

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Key Oil & Gas Price Indicators

Front Month Futures (August) July 12, 2012 July 5, 2012 % Change
Oil – WTI
(USD per barrel)
$86.08 $87.22 -1.31%
Oil – Brent
(USD per barrel)
$101.07 $100.70 0.37%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$2.87 $2.95 -2.41%

Data sources: Bloomberg; CME Group

Crude Oil Prices

WTI crude futures fell 1.3% last week and remained volatile due to mixed news. Weak economic data from China and Europe, news on growing inventories in the U.S., and estimated reduction in 2013 global oil demand growth drove oil prices down. Meanwhile, crude supply disruptions due to the oil and gas workers’ strike in Norway and sanctions on Iran boosted prices.

Closing price
Note: Intra-day prices (every 6 hours)
Data source: Bloomberg

  1. Crude futures fell 3.2% on Friday as China and Europe reduced their key interest rates on weak economic data. China cut interest rates on Thursday for the second time in a month and the European Central Bank followed suit, which sent the euro down versus the dollar. The U.S. Department of Labor reported that nonfarm jobs grew by only 80,000 last week, against analyst expectations of a 100,000 increase. Unemployment remained unchanged at 8.2%.
  2. Crude futures opened higher on Monday as the Chinese government released data highlighting a 2.2% year-on-year increase in its June Consumer Price Index (CPI). The figure provides room for further monetary easing. Negotiations in Norway over the weekend collapsed as striking oil and gas workers and management were unable to come to terms over early retirement. Norway produces 2 MMbbl/d and is the world’s eighth largest oil exporter and second largest gas exporter. Thus far, the strike has shut in some 240,000 bbl/d of oil.
  3. Crude futures fell on Tuesday as the Norwegian government pledged to restore full production within a week and ordered arbitration of the oil and gas labor dispute. Futures fell again as China released data that showed its June crude imports were ~22 million tons (~5.3 MMbbl/d) up 12% year-on-year, but down from just over 6 MMbbl/d in May. In the U.S., the National Federation of Independent Business reported that small business confidence fell to 91.4, down three points, a move they described as “substantial”. In its monthly Short Term Energy Outlook (STEO), the Energy Information Agency (EIA) reduced its 2013 world oil demand growth estimate by 400,000 bbl/d to 700,000 bbl/d.
  4. WTI crude futures rose throughout the day on a technical rebound from an overnight sell-off. OPEC announced that Iran’s production is down by an estimated 188,500 bbl/d to 2.96 MMbbl/d as a result of the oil sanctions. It is the first time since 1990 that Iran’s oil production has fallen below 3 MMbbl/d. The EIA announced that crude inventories fell by 4.7 MMbbl, far outpacing analyst expectations of a 1.1 MMbbl decline. However, gasoline inventories climbed by 2.76 MMbbl during what was expected to be a heavy-driving week due to the Independence Day holiday. Also sending a bearish signal were the growing middle distillate stockpiles, which rose by 3.1 MMbbl when analysts had expected a modest decline. Refinery utilization is up ~9% in the past 3 months as U.S. refiners find increased profitability in petroleum products exports.
  5. Oil prices fell in the first half of Thursday’s trading as Australia reported a rise in its unemployment figure for the second straight month to 5.2% from 5.1% in May. South Korea also lowered its key interest rate by 25 basis points on concerns of weak demand for Korean products in Europe. The International Energy Agency announced that 2013 global oil demand growth is expected to be only 1 MMbbl/d, a modest 1.1% increase.
  6. Futures began rising in the second half of Thursday’s trading, however, as the U.S. announced a new round of secondary sanctions on Iranian weapons networks and four front companies being used to evade the oil sanctions regime. The companies targeted for sanction were: Petro Suisse Intertrade Company (Swiss), Hong Kong Intertrade Company (Hong Kong), Noor Energy (Malaysia), and Petro Energy Intertrade Company (Dubai).

Natural Gas Prices

Natural gas futures reversed their 3-week upward trend and closed 2.4% lower this week. Inventory build-up of 33 Bcf offset the positive news of hot weather, the EIA's forecast of demand outpacing supply growth in 2012, and Cheniere receiving a funding commitment for its LNG export facility.

Closing price
Note: Intra-day prices (every 6 hours)
Data source: Bloomberg

  1. NYMEX natural gas futures fell sharply in Friday trading, closing down ~17 cents (5.7%) at $2.78 per MMBtu. Prices had briefly crossed the $3 mark on Thursday, which analysts believe is not a sustainable price, in light of weak demand and mounting storage levels. Recent small builds help lift prices, as warm temperatures increased demand for natural gas power-burn for cooling. EIA reported June gas inventories were 3.102 Tcf, 24.1% higher than a year ago.
  2. Natural gas futures regained >50% of Friday’s 16.9 cent decline following news from the EIA that the amount of power generated from natural gas equaled the amount of power generated by coal (32%) for the first time ever. However, National Weather Service forecasts predicted below average temperatures in Texas (TX) from July 14-22. Though temperatures are expected to be higher than normal in the Great Lakes region and the Northeast over roughly the same period, TX accounts for 18.5% of all electricity demand in the U.S.
  3. Natural gas futures fell sharply again on Tuesday on profit taking and storage levels builds. Although weekly storage builds have been below average for 10 weeks, total storage is still at a record high for this time of year with storage ~76% full, a level not usually reached until September. EIA stated in its STEO that natural gas production in 2012 is expected to increase ~4.2% or 2.8 Bcf/d to a record 68.98 Bcf/d. Meanwhile, consumption is expected to grow even more by 4.9% to 69.91 Bcf/d with an anticipated 21% increase in power burn in 2012 as utilities switch from coal to gas. Natural gas-directed rigs have dropped >40% this year, but the number of horizontal rigs is just below May’s record high of 1,193.
  4. Natural gas futures gained >4% on Wednesday on expectations of continued hot weather in much of the country. The East Coast and Northeast are expected to get above 90 degrees again this week. Natural gas prices were up 11.6 cents to close at $2.853 per MMBtu.
  5. Natural gas futures traded sideways ahead of EIA’s inventory report on Thursday. In the first half, prices fell 3.8% as the agency announced an inventory build of 33 Bcf, higher than analyst expectations of 25 Bcf. However, the increase was lower than the average for this time of year. Last year, inventories increased 87 Bcf during the same week. Prices quickly rebounded in the second half as a Louisiana LNG facility announced a $3.4 billion loan to finance the construction of an export facility, which is expected to give natural gas prices some support.

Futures Curve

U.S. Henry Hub natural gas is in “super contango” due to limited storage capacity (current natural gas inventories are 25% higher than the five-year average). The March 2013 futures delivery price for natural gas is 22% higher than the spot price, compared to just 3.4% 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) 15.77 15.63 0.90%
Gasoline Demand (MMBPD) 8.92 9.00 -0.89%
Distillate Demand (MMBPD) 3.24 3.85 -15.84%
Production (MMBPD) 6.25 6.09 2.63%
Imports (MMBPD) 8.63 8.77 -1.60%
Stocks (million barrels) 378.2 382.9 -1.23%
Rotary Rig Count 1,419 1,421 -0.14%
Natural Gas*
Indicators This Period* Prior Period* % Change
Consumption (Bcf)** 1,944 (Apr 12) 2,110 (Mar 12) -7.85%
Gross Withdrawals (Bcf)** 2,450 (Apr 12) 2,539 (Mar 12) -3.51%
Canadian Imports (Bcf)** 246.91 (Apr 12) 246.88 (Mar 12) 0.01%
LNG Imports (Bcf)** 7.55 (Apr 12) 19.27 (Mar 12) -60.81%
Working Storage (Bcf) 3,063 3,006 1.90%
Rotary Rig Count 534 541 -1.29%

Notes:
*The EIA did not release a natural gas report this week due to the U.S. Independence Day holiday. Thus, this period data is for the week ending June 27 and prior period data is for the week ending June 20.
**The EIA does not provide weekly natural gas consumption, withdrawals, and imports numbers. Thus, the latest available monthly numbers are reported above.
Data source: U.S. Energy Information Administration (EIA)

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

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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November 13, 2012
Deloitte Oil & Gas Conference – Houston, TX
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