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Weekly Oil & Gas Market Highlights: January 23, 2014

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures January 23,
2014
January 16,
2014
% Change
Oil – WTI
(USD per barrel)
$97.32 $93.96 3.6%
Oil – Western Canadian Select*
(USD per barrel)
$79.07 $75.76 4.4%
Oil – Brent
(USD per barrel)
$107.58 $107.09 0.5%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.73 $4.38 7.9%

Data sources: Bloomberg; CME Group
* Western Canadian Select (WCS) 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 rose 3.6% this week due to the opening of the southern leg of the KeystoneXL pipeline linking Cushing to the Gulf Coast. Weak economic data from China and easing tensions in Iran exerted downward pressure earlier in the week, while expectations of global economic recovery in 2014 supported prices later in the week.

Daily closing price
Note: Intra-day prices (every 6 hours); February month futures expired on January 21, 2014
Data source: Bloomberg

  1. Last Friday, crude futures rose after the U.S. Department of Commerce reported a less-than-expected fall in home construction data for December. Housing starts fell to an annualized 999,000 in December from 1.11 million in November according to the data. The Federal Reserve also reported U.S. industrial production grew for a fifth month in December, rising 0.3 percent after a 1% increase in November. However, futures fell later in the day, partially erasing earlier gains, as Thomson Reuters/University of Michigan released its estimate for January consumer confidence, which showed an unexpected drop to 80.4 from 82.5 in December. WTI crude futures closed up $0.41 at $94.37 per barrel.
  2. On Monday, crude futures fell during Asian trading as China's National Bureau of Statistics reported growth of 9.7% in factory production, the slowest in the last five months. China's economy expanded at 7.7% in the fourth quarter, which was down slightly from 7.8% in the third quarter. China is the world's second-largest oil consumer. Futures also fell as the International Atomic Energy Agency reported Iran has suspended enrichment of uranium over the 5% level need for commercial power reactors, stopped installation of centrifuges, and paused construction of a heavy-water reactor. Generally, up to 8% enriched uranium is considered as reactor grade and highly enriched uranium with 90% of fissile U-235 is considered as weapons grade. The measures were part of an agreement by Iran to suspend its uranium enrichment program in return for an easing of sanctions against it. Futures broadly moved sideways during New York trading as the trading floor was closed due to the Martin Luther King, Jr. holiday. WTI crude futures fell $0.65 with the last reported trade at $93.72 per barrel.
  3. On Tuesday, crude futures rose as the International Energy Agency (IEA) released its 2014 World Energy Outlook. The report estimated crude oil demand will increase to 92.5 MMbbl/d, rising in 2014 by 1.3 MMbbl/d above the 91.2 MMbbl/d in 2013. Demand growth in China slowed to 3% in 2013, but is expected to increase to 3.6% in 2014. China will account for nearly a third of oil demand growth in 2014 as the country's daily oil consumption rises to an estimated 10.49 MMbbl/d. U.S. crude demand is expected to increase to 19 MMbbl/d, up from 18.9 MMbbl/d in 2013. The IEA also increased its estimate for global GDP growth to 3.7% in 2014 from an earlier 3.6% estimate. WTI crude futures for February delivery closed up $1.27 from Monday’s last trade and expired at $94.99 per barrel. The March contract moved into the front-month position and closed at $94.97 per barrel.
  4. On Wednesday, crude futures spiked as the southern leg of the Keystone XL pipeline turned operational. The 485-mile-long pipeline connects Cushing, OK, with Nederland, Texas, and Gulf Coast refineries. The pipeline was flowing at 288,000 bbl/d on Wednesday and has a potential capacity of 830,000 bbl/d. Now in operation, the pipeline can begin to move crude stocks out of Cushing, where storage was last reported at 40.87 MMbbl on January 10 by the Energy Information Administration (EIA). Large volumes of oil in storage at Cushing had kept the WTI crude prices at a discount to Brent. WTI crude futures for March delivery rose $1.76 to close at $96.73 per barrel on the NYMEX.
  5. On Thursday, crude futures fell during Asian trading as HSBC reported a contraction in its preliminary estimate for China's Purchasing Manager's Index (PMI). The data showed China's PMI falling to 49.6 in January from 50.5 in December. A number over 50 indicates expansion. Crude prices rose later in the day as traders largely shrugged off EIA's weekly petroleum data. The agency reported a rise of 1 MMbbl in crude stocks to 351.2 MMbbl for the week ended January 17, the first increase in six months. The data also showed a 700,000 barrel build in crude stocks at Cushing. However, market participants remained focused on the broader market implications of the start of the southern leg of the Keystone XL pipeline on crude prices. As investors bid up the price of WTI, the Brent premium over WTI fell by $1.30 to around $10 per barrel. WTI crude futures for March delivery closed up $0.59 at $97.32 per barrel.

Natural gas prices

Henry Hub natural gas futures rose nearly 8% this week, boosted by expectations of an extended winter and a higher-than-expected draw in natural gas inventories. Natural gas prices have hit a two-year high supported by the sub-zero temperatures in the United States.

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

  1. Last Friday, natural gas futures fell as traders booked profits ahead of the holiday weekend. Natural gas futures have risen in recent weeks driven by arctic-like conditions across much of the country. However, revised forecasts showed a return to milder weather in the later part of January, which exerted downward pressure on natural gas prices. Henry Hub natural gas futures closed down 5.6 cents at $4.326 per MMBtu.
  2. On Monday, natural gas futures fell as investors speculated a return of milder weather in the U.S. will reduce demand for natural gas. There was no open-outcry trading on Monday due to the Martin Luther King, Jr. holiday. Trading volume was 82% lower than the 100-day average volume.
  3. On Tuesday, natural gas futures rose sharply as private weather forecasters released revised data showing heavy snowfall across the East Coast, which was expected to boost demand for natural gas-derived heating. According to the EIA, nearly half of U.S. households use natural gas for heating. Henry Hub natural gas futures rose 10.5 cents to close at $4.431 per MMBtu.
  4. On Wednesday, natural gas futures surged to two-year highs as the National Weather Service (NWS) released revised weather forecasts showing below-average temperatures across the eastern half of the U.S. in both the 6 – 10 and 8 – 14 day forecasts. Natural gas futures rose 5.8 percent as heavy snowfall blanketed the Northeast. Henry Hub natural gas futures rose 25.8 cents to close at $4.689 per MMBtu, the highest settlement price since June 10, 2011.
  5. On Thursday, natural gas futures rose as private weather forecasters released data showing current cold weather conditions were likely to persist across the eastern half of the country through the beginning of February. The rise in prices was supported by EIA's weekly natural gas inventory report, which showed working gas in storage falling by 107 Bcf to 2,423 Bcf. Henry Hub natural gas futures closed up 4.1 cents at $4.73 per MMBtu.

Futures curve

The forward curve for WTI crude is in backwardation, with September 2014 WTI futures 5.4% lower than near-month (March) futures due to rising North American crude supplies. The EIA expects U.S. crude production to average 8.54 MMbbl/d in 2014 — the highest since 1986 — boosted by increased drilling in tight oil plays. While the seasonal demand surge drove near-term (February) natural gas prices higher, the expectation of growing U.S. supply in 2014 weighed on September futures.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.22 15.73 -3.24%
Gasoline Demand (MMBPD) 8.06 8.02 0.50%
Distillate Demand (MMBPD) 3.78 3.73 1.34%
Production (MMBPD) 8.05 8.16 -1.35%
Imports (MMBPD) 7.54 6.89 9.43%
Stocks (million barrels) 351.2 350.2 0.29%
Rotary Rig Count 1,408 1,393 1.08%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,423 2,530 -4.23%
Rotary Rig Count 365 357 2.24%
Horizontal Rig Count 1,173 1,158 1.30%
Consumption (Bcf)* 1,860 (Oct 13) 1,756 (Sep 13) 5.92%
Gross Withdrawals (Bcf)* 2,574 (Oct 13) 2,466 (Sep 13) 4.40%
Canadian Imports (Bcf)* 203.3 (Oct 13) 228 (Sep 13) -10.83%
LNG Imports (Bcf)* 5.6 (Oct 13) 16.9 (Sep 13) -66.86%

Notes:
* 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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