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Weekly Oil & Gas Market Highlights: October 11, 2012

Deloitte Center for Energy Solutions publication

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Key Oil & Gas Price Indicators

Front Month Futures (August) October 11, 2012 October 4, 2012 % Change
Oil – WTI
(USD per barrel)
$92.07 $91.71 0.4%
Oil – Brent
(USD per barrel)
$115.71 $112.58 2.8%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.60 $3.41 5.8%

Data sources: Bloomberg; CME Group

Crude Oil Prices

Crude oil futures ended higher as Middle East supply risks outweighed global growth concerns. Growing geopolitical tensions in the Middle East and rising U.S. light oil production have widened Brent-WTI spread to over $23 per barrel, the highest level of this year.

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

  1. Crude futures fell in Asian trading last Friday as traders took profits after Thursday’s 4.1% rise. The Department of Labor’s Bureau of Labor Statistics released its weekly unemployment data which showed that the U.S. economy added 114,000 jobs over the prior week lowering the unemployment rate to 7.8% from 8.1% previously. The news provided a brief uptick in the price before prices began to fall as traders continued to be concerned about weak U.S. petroleum products demand and rising domestic supplies, currently at a 15-year high. Crude futures closed down 2% at $89.88 per barrel.
  2. On Monday, WTI futures continued their recent downward trend during Asian trading amid concerns about the growth of the Chinese economy, the major source of new crude demand. HSBC released its Purchasing Managers Index (PMI) for China, which showed a figure of 54.3 in September up from 52.0 in August. However, the official PMI for China released by the Chinese National Bureau of Statistics was 49.8 for September. Traders are also concerned that China’s estimated rate of GDP growth will be only ~7.7% in 2012, the lowest level since 1999. The price difference between Brent and WTI increased to nearly $23 per barrel, the highest in the past year. Brent futures are experiencing increased upside as a result of continued tight supplies in the North Sea and ongoing tensions in the Middle East. Futures rose rapidly after the news that the Turkish military shelled positions inside Syria held by the Syrian military. Tightness in the gasoline markets on the East Coast, where supplies are at four-year lows, and the West Coast, as a result of recent refinery issues, has led some producers to ration gasoline sales. The tight gasoline market is expected to give a boost to crude prices.
  3. Crude futures rose 3.4% on Tuesday amid continued tensions in the Middle East. In Asia, the People’s Bank of China injected 265 billion Yuan (+$40 billion) to provide liquidity to the Chinese market and jumpstart the sluggish economy. Ali al-Naimi, the Oil Minister for Saudi Arabia, said that the country would like to see a Brent price around $100 per barrel and pledged his nation would continue to provide the supplies necessary to meet demand. Saudi production is currently over 10 MMbbl/d and the country could increase production to 12.5 MMbbl/d, if needed. Despite the news, Brent closed up just under 1% at $112.55 per barrel. Crude prices shot up as Israeli Prime Minister Netanyahu called for new parliamentary elections for 2013. Oil market analysts see this as a move to consolidate his political support at home prior to any strike on Iran, which has threatened to close the Strait of Hormuz in retaliation for such a strike. Concerns about geopolitical tensions in the Middle East also overrode news that the International Monetary Fund trimmed its 2012 world GDP growth estimate to 3.3% from 3.5% in July and to 3.6% for 2013 from 3.9% in July.
  4. Crude futures fell slightly in Asia on Wednesday over concerns about continued sluggishness in the world economy. Keeping a floor under prices are the continued tensions between Turkey and Syria where traders are concerned about the 400,000 bbl/d that pass from Northern Iraq to the Turkish port of Ceyhan via a pipeline that runs along the Turkish border with Syria. NATO has warned against any escalation in the tensions between the two nations, stating that it has full capacity to defend Turkey if necessary. During the day, U.S. Secretary of Defense Leon Panetta said that the U.S. was sending a contingent of U.S. troops to the Jordon – Syria border to assist the Jordanians with intelligence and joint-operations planning. Crude prices fell as OPEC released its Monthly Oil Market Report, which estimated 2012 demand growth would remain unchanged at 800,000 bbl/d. However, the group revised downward last month’s projection from 900,000 to 800,000 bbl/d. Meanwhile, the Energy Information Administration (EIA) released its Short-term Energy Outlook, which estimates that U.S. production for 2012 will average 6.3 MMbbl/d and rise to 6.9 MMbbl/d in 2013, the highest level since 1993. Crude futures fell $1.14 to close at $91.25 per barrel.
  5. Crude futures rose during Thursday trading as news that Syrian security forces blew up a pipeline in Syria’s Deir Ezzor province, a region which accounts for 70% of Syria’s ~330,000 bbl/d oil production, reverberated through the market. Further adding to tensions, Turkish F-16s grounded a passenger plane travelling from Moscow to Damascus on suspicion that the plane was carrying weapons. Data from the Department of Labor showed that new jobless claims fell by 30,000 to 339,000, which would be the lowest level since 2008. However, the market largely shrugged off the news since the Department of Labor reported that one “large state”, which later was known to have been California, did not report certain figures and that accounted for most of the change. Crude futures fell marginally after the EIA released its weekly inventory data, showing that crude stocks rose 1.67 MMbbl to 366.4 MMbbl last week. Oil stocks are up 8.5% year on year. Gasoline stocks were down by 500,000 barrels and distillate stocks were also down falling 3.2 MMbbl. Crude production was up ~75,000 bbl/d over the past week at 6.6 MMbbl/d. Futures prices closed at $92.07 per barrel, an increase of 0.9%.

Natural Gas Prices

NYMEX natural gas futures hit a new 2012 high of $3.60 per MMBtu after the EIA reported less-than-expected build-up in natural gas inventories. Traders remain skeptical of the upside considering record-high inventory levels, peak production despite low drilling activity, reduced usage by electric utilities, and milder weather forecast.

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

  1. U.S. natural gas futures fell last Friday due to milder mid-month weather forecast and bearish inventory report on Thursday. Futures settled down $0.01 at $3.39 per MMBtu after finding support earlier in the day at $3.35 per MMBtu. Some traders speculate that if gas prices remain strong, utilities will switch back to coal. Additionally, as natural gas rises in value, gas wells that were abandoned previously due to poor economics may come on line. Baker Hughes released its weekly rig count data showing the natural gas rig count rose by 2 to 437, up from a 13-year low of 435.
  2. Natural gas futures slipped early on Monday, pressured by milder mid-month weather forecast for the Northeast and Midwest. Prices recovered in the last few hours of trading and closed up 0.2% after the government forecast pointed toward cooler weather in late October, boosting demand for heating.
  3. On Tuesday, natural gas futures surged $0.10 in fifteen minutes as a weather model showed temperatures cooling in the 11 – 15 day forecast giving hope that the heating season would commence shortly. Given that anticipated warmth in the two-week forecast had dampened prices in earlier sessions, the market reacted quickly to correct the earlier discount. However, should the two-week forecast change significantly, bearish market fundamentals may again reassert themselves.
  4. On Wednesday, natural gas futures were nearly unchanged, but ended higher for the third straight day closing at $3.47 per MMBtu. The front-month contract surged just under 25% over the past two weeks of trading. However, analysts noted that this week’s price rose only ~2.5%.
  5. U.S. natural gas futures surged 3.7% on Friday as EIA released its weekly natural gas storage report. The data showed a below average build of just 72 Bcf to 3,725 bcf, below last year’s injection of 104 bcf and the 5-year average injection for this time of year of 84 bcf. Natural gas futures closed at $3.60 per MMBtu, at an intra-day and year’s high.

Futures Curve

U.S. Henry Hub natural gas is in “contango” due to cooler weather forecasts and limited storage capacity (current natural gas inventories are ~8% higher than the five-year average). June 2013 natural gas futures are 11% higher than current prices, despite the recent price rally, compared to just 3% 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) 14.75 14.85 -0.65%
Gasoline Demand (MMBPD) 8.58 8.63 -0.53%
Distillate Demand (MMBPD) 3.82 4.09 -6.60%
Production (MMBPD) 6.59 6.52 1.20%
Imports (MMBPD) 8.22 8.11 1.42%
Stocks (million barrels) 366.4 364.7 0.47%
Rotary Rig Count 1,398 1,410 0.85%
Natural Gas*
Indicators This Period Prior Period % Change
Consumption (Bcf)* 2,045 (Jul 12) 1,847 (Jun 12) 10.73%
Gross Withdrawals (Bcf)* 2,457 (Jul 12) 2,424 (Jun 12) 1.44%
Canadian Imports (Bcf)* 265.45 (Jul 12) 250.04 (Jun 12) 5.95%
LNG Imports (Bcf)* 15.36 (Jul 12) 8.26 (Jun 12) 86.02%
Working Storage (Bcf) 3,725 3,653 1.97%
Rotary Rig Count 437 435 0.46%
Horizontal Rig Count 1,132 1,142 -0.88%

Notes:
*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

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