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Weekly Oil & Gas Market Highlights: October 17, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures October 17,
2013
October 10,
2013
% Change
Oil – WTI
(USD per barrel)
$100.67 $103.01 -2.3%
Oil – Western Canadian Select*
(USD per barrel)
$69.37 $71.55 -3.0%
Oil – Brent
(USD per barrel)
$110.86 $111.80 -0.8%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.76 $3.72 0.9%

Data sources: Bloomberg; CME Group
* Western Canadian Select is a blend of Canadian heavy conventional and bitumen crude oils blended with sweet synthetic and condensate oils traded in Hardisty, Canada.

Crude oil prices

WTI crude futures fell over 2% this week due to concerns over the U.S. federal shutdown and easing up of tensions in Iran. Although the approval of the U.S. debt deal had a positive effect on crude prices, a rise in crude inventories and higher-than-expected jobless claims weakened the impact.

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

  1. Last Friday, crude futures fell as the International Energy Agency (IEA) reported that the growth of non-OPEC oil production for 2014 will be 1.7 MMbbl/d, an increase of 360,000 barrels from earlier estimates, which was well above analyst expectations. The IEA currently expects non-OPEC production to reach 56.4 MMbbl/d in 2014, which puts pressure on OPEC to reduce supplies or let prices fall. Meanwhile, OPEC's production fell to just under 30 MMbbl/d last month, the lowest level in two years, due to reduced output from Libya and Iraq. The IEA also joined the debate over the U.S. federal budget as it warned that a continued partial shutdown of the federal government could harm crude demand. Continued instability in Libya following the temporary seizure and release of Prime Minister Ali Zidan has increased concerns about unrest in the country, which could impact crude production. Libyan concerns helped raise Brent's premium to WTI to a four-month high of around $10 per barrel. WTI crude futures closed down 1% at $102.02 per barrel.
  2. On Monday, crude futures fell during Asian trading as China released data showing its exports contracted 0.3% year-on-year in September, well below the 7.2% growth in August and analyst expectations. However, China's oil imports rose to 6.27 MMbbl/d—a new record high—and up 28% from last year. Continued talks between Iran and the West over the former’s nuclear ambitions also weighed on the market. Iran's foreign minister said he hoped a "roadmap" for negotiations could be reached this week. Improving relations between Iran and the West could result in a lifting of crude sanctions against the country and over 1 MMbbl/d of oil could return to the global market. According to the Energy Information Administration (EIA), Iran's daily crude production is 3.5 MMbbl/d, down 17% from last year. However, prices rose during New York trading on hopes of a possible debt deal between Republicans and Democrats. Prices also found support from the 1% rise in August-month Eurozone industrial production data, which exceeded analyst expectations of 0.8%. WTI crude futures fell 0.39 cents to $102.41 per barrel.
  3. On Tuesday, crude futures eased as Western diplomats expressed optimism over nuclear discussions with Iran. Analysts forecast a $12 per barrel decline in the Brent benchmark price—used to price over half of the crude traded in the world—if oil sanctions on Iran are eased. The easing of sanctions would coincide with the highest levels of Saudi production in three decades and surging U.S. production. On the demand side, the shutdown of the 210,000 bbl/d refinery in Grangemouth, Scotland, ahead of a labor strike weighed on the prices.  On the supply side, however, no impact was expected, although the refinery supplies steam and power to BP’s Kinneil oil terminal handling North Sea crude from the Forties pipeline system. The pipeline ships 45% of UK's North Sea output. Negotiations over the partial shutdown of the U.S. federal government continued to weigh on the market. Senate Majority Leader Harry Reid said "tremendous progress" had been made toward a deal that would reopen the government at current spending levels until January 15, 2014 and raise the government debt limit through February 7, 2014. However, the news failed to rally the market. WTI crude futures fell $1.20 per barrel to close at $101.21.
  4. On Wednesday, traders continued to monitor the negotiations between Iran and six world powers, now in the second day. The world powers released a joint statement saying that the Iranian government had provided an "outline of a plan" to resolve the nuclear stand-off and talks had been "forward-looking." Crude markets are looking at the possibility of a flood of Iranian crude in global markets if talks are successful. During the day, crude futures also tracked negotiations over the budget impasse in Washington. Futures rallied as Senate leaders from both parties reached an agreement to temporarily raise the nation’s debt ceiling until February 7, 2014 and fund the federal government through January 15, 2014. Both the Senate and the House of Representatives approved the measure later in the day and sent it to the White House for the president’s signature. WTI crude futures closed up $1.08 at $102.29 a barrel.
  5. On Thursday, crude futures fell as the American Petroleum Institute (API) released its weekly oil inventory report showing a 5.94 MMbbl rise in U.S. crude supplies while crude inventories at Cushing, OK, rose 291,000 barrels. In the absence of official government figures from the EIA due to the temporary government shutdown, API figures are being closely watched this week as a proxy for official data. Overnight, President Obama signed a bill passed by the House and Senate to end the partial shutdown of the U.S. government and raise the federal debt ceiling until February 7, 2014. As part of the deal, the president will temporarily have the authority to increase the federal debt ceiling unless Congress acts to block the move, which could be vetoed by the President. Prices also fell as the Department of Labor reported new jobless claims of 358,000 last week, higher than analyst expectations of 335,000. WTI crude futures fell $1.62 to close at $100.67 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures rose nearly 1% this week on expectations of below-average temperatures across the country. However, profit-booking by traders after a rise above 100- and 200-day moving averages limited the prices.

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

  1. Last Friday, natural gas futures rose as revised weather forecasts from the National Weather Service (NWS) called for below-average temperatures in the 6–10 day forecast, with only parts of the East Coast experiencing above-average temperatures. The National Hurricane Center (NHC) continued to track a low-pressure system off Cape Verde, which had a 50% chance of developing into a tropical storm. Baker Hughes reported the gas-directed rig count fell by 9 rigs to 369 last week. Henry Hub natural gas futures closed up 5.3 cents at $3.776 per MMBtu.
  2. On Monday, natural gas futures rose as revised forecasts from the NWS showed below-average temperatures across the country except for small portions of the East and West Coasts. Also boosting natural gas demand, seasonal shutdowns of nuclear power plants are supporting gas futures. However, due to the government shutdown, no data was reported by the Nuclear Regulatory Commission. Henry Hub natural gas futures closed up 4.4 cents at $3.82 per MMBtu.
  3. On Tuesday, NWS forecasts continued to show below-average temperatures across nearly the entire country, helping to boost expectations for gas-derived heating demand. However, prices slipped marginally as traders engaged in profit-taking after prices moved above the 100- and 200-day moving averages. The NHC reported no tropical storms were expected over the next five-day period. Henry Hub natural gas futures closed down 3 cents at $3.79 per MMBtu.
  4. On Wednesday, profit-taking continued to put downward pressure on futures prices. Last week, natural gas futures rose nearly 8% due to temporary production cuts as a result of Tropical Storm Karen and a cooling trend in weather forecasts. Henry Hub natural gas futures closed down 2.1 cents at $3.769 per MMBtu.
  5. On Thursday, natural gas futures fell for a third straight session as technical selling continued to outweigh the NWS forecasts of cooler weather across most of the country. Prices were down nearly 2% since Monday. The EIA did not release this week’s natural gas inventory data due to the federal government shutdown. Due to the absence of data, traders remained unclear about the direction of current gas demand. Henry Hub natural gas futures closed for the day at $3.757 per MMBtu, down 1.2 cents.

Futures curve

The forward curve for WTI crude is in backwardation, with June 2014 WTI futures 3.3% lower than near-month (November) futures, primarily due to growing North American supply and concerns about a slowdown in global economic growth. However, June 2014 natural gas futures are at a premium of 5.2% over November 2013 futures due to expectations of moderate supply growth and higher demand from commercial and residential sectors in 2014.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) NA* 14.89 NA*
Gasoline Demand (MMBPD) NA* 8.85 NA*
Distillate Demand (MMBPD) NA* 3.83 NA*
Production (MMBPD) NA* 7.81 NA*
Imports (MMBPD) NA* 8.04 NA*
Stocks (million barrels) NA* 370.5 NA*
Rotary Rig Count 1,367 1,372 -0.36%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) NA* 3,557 NA*
Rotary Rig Count 369 378 -2.38%
Horizontal Rig Count 1,106 1,099 0.64%
Consumption (Bcf)** 1,910 (Jul 13) 1,727 (Jun 13) 10.60%
Gross Withdrawals (Bcf)** 2,552 (Jul 13) 2,453 (Jun 13) 4.03%
Canadian Imports (Bcf)** 225.9 (Jul 13) 228.9 (Jun 13) -1.31%
LNG Imports (Bcf)** 8.1 (Jul 13) 8.1 (Jun 13) NC

Notes:
*
EIA did not release data this week due to the federal government shutdown.
**
The EIA does not provide weekly natural gas consumption, withdrawal and import numbers. Thus, the latest available monthly numbers are reported above.
NC – No Change
Data source: U.S. Energy Information Administration (EIA)

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