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Weekly Oil & Gas Market Highlights: May 01, 2014

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures  May 1,
2014
April 24,
2014
% Change
Oil – WTI
(USD per barrel)
$99.42 $101.94 -2.5%
Oil – Western Canadian Select*
(USD per barrel)
$82.57 $83.34 -0.9%
Oil – Brent
(USD per barrel)
$107.76 $110.33 -2.3%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.72 $4.71 0.3%

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 futures fell 2.5% this week and settled at a one-month low due to rising U.S. supplies. Crude stocks in the country have reached the highest level since 1931 due to the shale oil boom. However, geopolitical tensions in Ukraine continue to maintain a floor under prices.

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

  1. Last Friday, WTI futures fell during Asian trading, pressured by rising U.S. crude supplies reported by the Energy Information Administration (EIA) on Thursday. Current crude inventories of 397.7 MMbbl are the highest since 1931. Crude futures fell further during New York trading as a disappointing first quarter earnings season sent the S&P 500 lower, bringing the broader markets down with it. The S&P 500 fell more than 1% as first quarter results from major U.S. corporations failed to meet analyst expectations. Nine of the 10 primary industries in the index fell. The news reverberated to the broader markets with the oil market falling 1.3% following the news. WTI crude futures fell $1.34 to close at $100.60 per barrel.
  2. On Monday, crude futures fell in early trading before ending higher. Prices weakened as Libya lifted the force majeure that had been imposed on the port of Zuetina due to ongoing unrest. The port was returned to government control two weeks ago, but cargoes have not begun loading at the 70,000 bbl/d facility. During New York trading, crude futures reversed course as the U.S. imposed further sanctions against Russia over the crisis in Ukraine. The U.S. expanded the list of individuals and companies subject to asset freezes and travel bans. European leaders also met to discuss a widening of EU sanctions against Russia, but the results of the talks are yet to be announced. Crude futures continued their rise on speculation this week’s data from the EIA would show another drop in crude stocks at Cushing, OK, as the southern leg of the Keystone pipeline continues to alleviate the bottleneck in supplies at the key pricing point. WTI crude futures rose $0.24 and closed at $100.84 per barrel.
  3. On Tuesday, crude futures rose as the EU added 15 individuals to its sanctions list. EU sanctions were applied to Russian deputy premier Dmitry Kozak as well as separatist leaders in Ukraine. The expanded sanctions approved in the U.S. include Igor Sechin, the CEO of Russian oil giant Rosneft, as well as tanker-car company OOO Transoil and the pipeline construction company Stroytransgaz. Crude futures spiked following violence in Libya. A group of gunmen opened fire outside the main entrance to Libya’s parliament as a vote for the next prime minister of the country was being conducted. The exchange of fire began when presidential guards prevented an armed group from entering the building. The armed group is believed to have been comprised of supporters of a candidate who lost in the first round of voting. The vote to choose a new prime minister for Libya was postponed until May fourth as a result of the shooting. WTI crude futures for June delivery rose $0.44 to settle at $101.28 per barrel.
  4. On Wednesday, crude futures plunged after Russian President Putin warned the West against imposing further sanctions over the crisis in Ukraine. Any increase in sanctions may lead Russia to reconsider U.S. and European participation in Russia’s energy industry and other sectors of the economy. The EU and U.S. responded saying Russia needs to live up to its commitments under the April 17 Geneva Agreement intended to diffuse tensions in the region. Additional sanctions may be enacted if Russia sends troops into Ukraine. Crude futures continued to fall below $100 per barrel later in the day as EIA released its weekly crude data, which showed U.S. supplies rising by 1.7 MMbbl to 399.4 MMbbl last week, the highest level since April 1931. U.S. crude inventories peaked in October 1929 at 545.2 MMbbl. Supplies at Cushing fell 612,000 barrels to 25.4 MMbbl while supplies along the Gulf Coast rose to 315.3 MMbbl, the highest level since EIA began tracking regional storage levels in 1990. Crude futures also came under downward pressure as the Department of Commerce reported U.S. GDP growth in the first quarter was almost flat, rising at an annualized rate of just 0.1% over the period. The figure was attributed to cold weather, which contributed to lower consumer and business spending. WTI crude futures closed down $1.54 at $99.74 per barrel, the lowest level in four weeks.
  5. On Thursday, crude futures extended Thursday’s fall as China’s National Bureau of Statistics reported the country’s Purchasing Manager’s Index rose marginally to 50.4 in April from 50.3 in March which was below analyst expectations. In Ukraine, separatists in the eastern portion of the country occupied government buildings in more cities during the day. Russia has called on Ukraine to increase regional autonomy in the eastern portion of the country in response to separatist demands. U.S. jobless claims rose by 14,000 to 344,000 last week according to data from the Department of Labor. The data was largely ignored by the market as jobless claims remain near seven-year lows. WTI crude futures fell $0.32 and closed at $99.42 per barrel.

Natural gas prices

Henry Hub natural gas futures rose marginally due to concerns over the large deficit in natural gas storage. The higher-than-expected weekly injection into natural gas storage partially weakened prices; however, current inventory levels are still nearly 800 Bcf less than last year.

Daily closing price
Note: Intra-day prices (every 6 hours); May month futures expired on April 28, 2014
Data source: Bloomberg

  1. Last Friday, natural gas futures fell as the National Weather Service (NWS) reported above-average temperatures were expected to cover much of the western portion of the country in the 6–10 day forecast. Natural gas consumption as reported by EIA last week declined by 2.2 Bcf/d week-on-week due to warmer spring temperatures. Henry Hub natural gas futures for May delivery fell 5.8 cents to close at $4.647 per MMBtu.
  2. On Monday, natural gas futures rose, driven by market concerns over the large gas storage deficit to year-ago and five-year average levels. Current inventories at 899 Bcf are 831 Bcf below last year’s level and over one trillion Bcf below the five-year average. Analysts estimate it will require an additional accumulation of between 2–2.5 Tcf in order to rebuild natural gas in storage to adequate levels before this year’s winter heating season. Henry Hub natural gas futures for May delivery expired at $4.795 per MMBtu, up 14.8 cents. June futures, which rolled into the front-month position, closed up 14.1 cents at $4.799 per MMBtu.
  3. On Tuesday, natural gas futures rose on continued concerns over low gas inventories. Although the 2013-14 heating season has ended, the summer cooling season will begin shortly, cutting into natural gas storage builds. If injections do not begin to exceed the five-year average, the industry may not be able to adequately rebuild storage levels for next winter. Henry Hub natural gas futures for June delivery closed up 3.2 cents at $4.831 per MMBtu.
  4. On Wednesday, natural gas futures fell as revised weather forecasts from the NWS showed the area of below-average temperatures in the 6–10 day forecast confined to the Northeast, the Great Lakes region, and the West Coast. As a result of warming temperatures, analysts are expecting a large injection in this week’s EIA data would weigh on futures prices. Henry Hub natural gas futures closed down 1.6 cents at $4.815 per MMBtu.
  5. On Thursday, natural gas futures fell as EIA reported U.S. working gas in underground storage rose 82 Bcf last week. The injection was bearish compared to the 41 Bcf rise during the same week last year and the five-year average injection of 58 Bcf. The large injection could be a harbinger of above-average injections that would help rebuild natural gas inventories prior to the onset of this winter’s heating season. Henry Hub natural gas futures closed for the day at $4.719 per MMBtu, down 9.6 cents.

Futures curve

The yield curve for WTI crude continues to be in backwardation, with December 2014 WTI futures nearly 4.9% lower than near-month (June) futures due to rising North American crude production and stockpiles. The EIA expects U.S. crude production to average 8.37 MMbbl/d in 2014 — the highest since 1987 — boosted by increased drilling in tight oil plays. Natural gas futures are out of backwardation following the end of the winter heating season. Near-term (June) prices are 3.1% lower than the December 2014 futures.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.94 15.98 -0.25%
Gasoline Demand (MMBPD) 8.69 8.43 3.08%
Distillate Demand (MMBPD) 3.91 3.83 2.09%
Production (MMBPD) 8.35 8.36 -0.12%
Imports (MMBPD) 7.48 7.79 -3.98%
Stocks (million barrels) 399.4 397.7 0.43%
Rotary Rig Count 1,534 1,510 1.59%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 981 899 9.12%
Rotary Rig Count 323 316 2.22%
Horizontal Rig Count 1,245 1,224 1.72%
Consumption (Bcf)* 2,757 (Feb 14) 3,216 (Jan 14) -14.27%
Gross Withdrawals (Bcf)* 2,381 (Feb 14) 2,641 (Jan 14) -9.84%
Canadian Imports (Bcf)* 242.9 (Feb 14) 286.6 (Jan 14) -15.24%
LNG Imports (Bcf)* 3.8 (Feb 14) 8.5 (Jan 14) -55.29%

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)

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

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About the Deloitte Center for Energy Solutions
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Through the Center, Deloitte’s Energy & Resources Group leads the debate on critical topics on the minds of executives–from the impact of legislative and regulatory policy, to operational efficiency, to sustainable and profitable growth. We provide comprehensive solutions through a global network of specialists and thought leaders.

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