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Weekly Oil & Gas Market Highlights: January 10, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) January 10, 2013 January 3, 2012 % Change
Oil – WTI
(USD per barrel)
$93.82 $92.92 1.0%
Oil – Brent
(USD per barrel)
$111.89 $112.14 -0.2%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.19 $3.20 -0.2%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI prices rose this week on news about the upcoming Seaway pipeline expansion and positive economic data from China and Spain. Futures closed up 1% for the week at $93.82 per barrel, despite downward pressure from increased oil production and weak inventory data from the U.S.

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

  1. NYMEX WTI futures fell during Asian trading as market participants’ concerns grew over the minutes of the Federal Open Market Committee meeting, which indicated that the Federal Reserve might halt its bond-purchase program earlier than anticipated. The bond buying program has helped to keep oil prices up by stimulating the economy and weakening the U.S. dollar. Futures began rising during New York trading as the Department of Labor’s weekly jobless claims data showed that nonfarm payroll employment increased by 155,000 jobs in December. Unemployment remained at 7.8%, unchanged from November. WTI futures were also buoyed by traders’ anticipation of a threefold increase in crude volumes to be transported via the Seaway pipeline to the Gulf Coast. Currently, the pipeline ships 150,000 bbl/d. However, an expansion is expected to come online later in the week ending January 11, increasing the capacity of the line to 400,000 bbl/d. The new pipeline should help alleviate burgeoning oil in storage at Cushing, Oklahoma. According to Energy Information Administration (EIA) data, crude stocks at Cushing were a record 49.8 MMbbl, which is 70% higher than the same time last year. NYMEX WTI crude futures closed up 17 cents at $93.09 per barrel.
  2. On Monday, crude futures fell during Asian trading on profit-taking following last week’s rally due to the fiscal-cliff deal in Washington. During New York trading, WTI futures rose on news that the Seaway pipeline will begin transporting 400,000 bbl/d of oil later in the week. As a result, the spread between Brent and WTI prices narrowed to $18.21 per barrel, the lowest level since September 2012. Traders speculate that the Brent/WTI spread will continue to narrow over time as additional pipelines bring Cushing stocks to the Gulf Coast. Brent and WTI usually trade within a few dollars of each other, but this changed when the unconventional oil revolution in North America increased production building stocks at the Cushing trade hub. However, traders grew concerned over the debate in Washington about increasing the debt ceiling. Some lawmakers plan to use the need to raise the $16.4 trillion debt ceiling to put pressure on President Obama and other members of Congress to accept spending cuts to some programs. Futures closed up 10 cents at $93.19 per barrel.
  3. Futures traded within a narrow band of $93.00-$93.30 per barrel during Asian trading as the market sought new direction following last week’s rally. Many traders expected the EIA data to show a bearish crude inventory build this week after last week’s report showed a large drawdown of 11.1 MMbbl as refineries limited imports in order to reduce their year-end tax exposure. During London trading, futures rose as the European Commission announced that economic confidence in the Eurozone had increased. The region’s Economic Sentiment Indicator increased to 87 from 85.7 in November, which was above analyst expectations. Futures fell during New York trading as the EIA released its Short Term Energy Outlook for January, which showed an 800,000 bbl/d increase of crude production in the U.S. to an average of 6.4 MMbbl/d in 2012. The EIA expects that U.S. production will continue to rise, reaching 7.3 MMbbl/d in 2013 and 7.9 MMbbl/d in 2014. However, the EIA projected that global demand would grow by ~0.95 MMbbl/d in 2013 and 1.35 MMbbl/d in 2014.
  4. On Wednesday, crude futures trended downward in Asian trading ahead of expectations of a bearish build in U.S. crude inventories later in the day. During London trading, the United Kingdom’s (UK) Office of National Statistics reported that the country’s November trade deficit in goods narrowed less than analysts expected to $14.8 billion. A major driver of UK’s trade deficit is the long-term decline of oil production in the North Sea. Crude futures rose ahead of EIA’s release of oil stocks data, but quickly yielded gains as the data showed a 6% decline in implied demand for oil to 17.75 MMbbl/d. Gasoline demand was down to just above 8 MMbbl/d, while distillates were down to 3.1 MMbbl/d. As a result, gasoline stocks rose by 7.4 MMbbl and distillate stocks increased 6.8 MMbbl. Both figures were well above analyst expectations. Crude stocks rose 1.3 MMbbl, but the figure was lower than analyst expectations. Later in the day, traders dismissed the bearish data as futures began trending upward along with the broader market. WTI futures closed down 5 cents at $93.10 per barrel.
  5. On Thursday, oil futures rose in Asian trading as China’s customs agency data showed that exports increased 14% YoY in December and 7.9% for all of 2012. The figure was well above the 2.9% growth reported in November and was the highest level of exports in seven months. China’s imports also increased, showing a healthy domestic economy and alleviating fears of a hard economic landing in the country. The General Administration of Customs also announced that China’s crude imports were up nearly 7% in 2012. Following the news, Brent reached a three-month high, over $113 per barrel, and WTI rose more than $1.50 per barrel. Crude futures were also buoyed by news that Saudi Arabia had cut its crude production by nearly 5% to 9.025 MMbbl/d in December, which is the largest month-on-month drop since November 2008. During European trading, futures rose as Spain’s debt auction attracted more buyers than anticipated. The nation exceeded its maximum target for the auction while its yields fell to under 5% from a high of 7.75% during the summer. The news caused the euro to rise versus the dollar, which is bullish for crude. Also boosting European optimism, European Central Bank President Mario Draghi made a statement that “a gradual recovery should start” in Europe during the year. During New York trading, futures trended downward, partially offsetting the gains in earlier sessions as the U.S. Department of Labor’s weekly unemployment data showed that the number of new jobless claims rose by 4,000 to 371,000. Futures closed up 0.8% at $93.82 per barrel.

Natural gas prices

U.S. Henry Hub futures ended 0.2% down this week on account of higher natural gas production and expectation of above-average winter temperatures in key consuming regions such as Northeast. However, positive inventory data provided a partial relief for the falling natural gas prices.

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

  1. On Friday, NYMEX natural gas futures rose almost 8.9 cents to $3.287 per MMBtu, as EIA’s weekly natural gas storage data showed that gas in storage fell by 135 Bcf, which was above analyst expectations. However, storage levels are still slightly above last year’s figures and more than 10% above the five-year average. The National Weather Service’s (NWS) 6–10 day forecast showed above-average temperatures covering most of the eastern half of the country while the western half of the country was below average. The 8–10 day forecast showed the area of below-average temperatures expanding from the West to cover Central U.S. as well. Baker Hughes rig count data released on Friday showed that gas-directed rigs increased by 8 to 439, rising for the third week in a row.
  2. Natural gas futures ended lower on Monday as the EIA released monthly gas production data that showed marketed production in October reached an all-time high of 2,172 Bcf. Forecasts from the NWS were also not able to provide much optimism about future demand. The 6–10 day forecast continued to show below-average temperatures in the central and western parts of the U.S. However, the Northeast, which is a key heating region, will experience above-average temperatures, as will the rest of the entire East Coast. Nuclear power plant outages at nearly 9,000 MW were above the average outage for this time of year of 5,300 MW. Natural gas futures closed down 2.1 cents at $3.266 per MMBtu.
  3. On Tuesday, natural gas futures extended Monday’s decline as traders grew skeptical that the rest of this year’s winter will not have enough days of below-average temperatures in key demand regions to drive down gas storage levels. The NWS 6–10 day forecast continued to show above-average temperatures across the East Coast. Even though the 8–10 day forecast showed a retreat of the area affected by warmer-than-normal temperatures, many traders noted that the 8–10 day forecast is a less reliable indicator. Futures closed down 4.8 cents at $3.218 per MMBtu.
  4. Natural gas futures fell for the third straight day on Wednesday, ending the day down 10.5 cents at $3.113 per MMBtu. Traders anticipated that EIA data, scheduled to release the next day, would show a strong draw in inventories due to cool weather across much of the country during the past week. However, gas inventories remain above year-ago levels and if temperatures do not fall significantly in key heating demand centers, it is possible that inventories will end the heating season above the record levels seen last year. Thus far, the front-month contract has lost more than 5.3% this week, which slightly exceeds last week’s decline of 5.2%.
  5. Futures reversed recent declines on Thursday, as the EIA data showed a stronger-than-expected draw from natural gas in storage over the past week. Natural gas inventories fell by 201 Bcf last week to 3,316 Bcf, well above last year’s peak draw of 192 Bcf. The news gave traders some optimism that the figure might reflect a realignment of demand in the utilities sector in favor of natural gas. However, traders were concerned that the higher than average temperatures reflected in the current NWS forecast could be a bearish signal for the rest of the season. Front-month natural gas futures closed up 8 cents at $3.193 per MMBtu.

Futures curve

September 2013 WTI futures are 1.4% higher than current prices, reflecting the average cost of carry, limited upside in demand, and adequate supply. However, the September 2013 natural gas futures premium widened to 8.8% due to the recent fall in near-month (February) delivery prices.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.26 15.3 -0.26%
Gasoline Demand (MMBPD) 8.01 8.61 -6.97%
Distillate Demand (MMBPD) 3.09 3.71 -16.71%
Production (MMBPD) 7.0 6.98 0.29%
Imports (MMBPD) 8.32 8.03 3.61%
Stocks (million barrels) 361.3 371.1 -2.64%
Rotary Rig Count 1,318 1,327 -0.68%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,316 3,517 -5.72%
Rotary Rig Count 439 431 1.86%
Horizontal Rig Count 1,112 1,111 0.09%
Consumption (Bcf)* 1,888 (Oct 12) 1,798 (Sep 12) 5.01%
Gross Withdrawals (Bcf)* 2,571 (Oct 12) 2,427 (Sep 12) 5.93%
Canadian Imports (Bcf)* 242.3 (Oct 12) 246.4 (Sep 12) -1.66%
LNG Imports (Bcf)* 10.3 (Oct 12) 11.5 (Sep 12) -10.43%

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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