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Weekly Oil & Gas Market Highlights: March 27, 2014

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures March 27,
2014
March 20,
2014
% Change
Oil – WTI
(USD per barrel)
$101.28 $99.43 1.9%
Oil – Western Canadian Select*
(USD per barrel)
$82.58 $80.43 2.7%
Oil – Brent
(USD per barrel)
$107.83 $106.45 1.3%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.58 $4.37 4.9%

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 nearly 2% this week due to rising tensions in Crimea and a reduction in Libyan crude output. Further, crude inventories at Cushing fell to a two year low helping ease the Brent-WTI discount, which fell below $7 per barrel.

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

  1. Last Friday, crude futures fell during Asian trading after Fed Chairperson, Janet Yellen, hinted at an earlier-than-planned rise in interest rates. As an outcome of the Federal Reserve meeting on Thursday, Yellen described plans to hike the interest rates six months after the planned end of the Fed stimulus program this autumn. Futures fell below $100 per barrel as the dollar grew stronger, making dollar-denominated crude more costly for foreign buyers. Crude futures rose sharply during New York trading as investors monitored tensions in Ukraine for signs of follow-on sanctions against Russia, which could affect world energy markets. Russian President, Vladimir Putin, signed a bill formally incorporating Crimea into Russia, while the U.S. and the EU imposed additional sanctions against the country. Russia enacted counter-sanctions against six U.S. lawmakers and three White House officials. The EU also signed an Association Agreement with Ukraine forging closer political and economic ties between them. WTI crude futures for May delivery closed up $0.56 at $99.46 per barrel.
  2. On Monday, futures fell during Asian trading as China’s preliminary Purchasing Manager’s Index from HSBC remained below 50 for the third month in a row. The 48.1 rating, an eight-month low, disappointed analysts who had hoped for an uptick following the Lunar New Year holiday in the country. However, later in the day, some investors reacted positively to the news, taking it as an indicator additional stimulus measures could be enacted in the country in order to boost the economy. Oil futures rose during New York trading as a barge carrying fuel oil collided with a bulk carrier over the weekend, spilling an estimated 4,000 barrels of fuel oil into Galveston Bay in Texas. The Houston Ship Channel was closed following the incident, leaving an estimated 81 ships waiting to enter the channel for almost two days. Uncertainty over when the channel would reopen raised the prices. WTI crude futures settled up $0.14 at $99.60 a barrel.
  3. On Tuesday, crude futures fell in Asian trading as investors continued to express concern over slowing manufacturing activity in China. The country is the world’s second-largest oil consumer and accounts for 25% of the expected increase in oil demand in 2014, according to the International Energy Agency. An accelerating economic slowdown in the country would have a negative effect on global crude demand. During New York trading, crude futures gained support as Russia was ousted from the elite G8 economic group and Western nations discussed further sanctions against Russia that could include the energy sector. Futures reversed course later in the day as the U.S. Coast Guard partially reopened the Houston Ship Channel after a three-day clean-up effort. The waterway links refineries with seaborne crude imports from the Gulf of Mexico. As the waterway remained closed, as many as 140 ships, some of which were carrying crude, were blocked from entry. By late Tuesday only 25 ships were still delayed for entry. WTI crude futures closed down $0.41 at $99.19 a barrel.
  4. On Wednesday, crude futures rose as the Department of Commerce reported demand for all durable goods increased by 2.2%, which was above analyst expectations. The increase was driven by orders for motor vehicles and parts, which increased 3.6% according to the data. Later in the day, the Energy Information Administration (EIA) released its weekly petroleum data, which showed crude supplies at Cushing, the main pricing point for WTI, fell 1.33 million barrels last week to 28.5 million barrels, the lowest level in two years. Crude inventories at Cushing have been declining since the opening of the southern leg of the Keystone XL pipeline linking the pricing hub to Gulf Coast refineries. As a result of the increased transport away from Cushing, stockpiles along the Gulf Coast rose 6.06 million barrels to 200.3 million, the highest level of inventories since the EIA began keeping record in 1990. News of falling stocks at Cushing helped narrow the Brent premium over WTI to $6.77 per barrel from $7.80 a barrel the day before. WTI crude for May delivery closed up $1.07 at $100.26 a barrel.
  5. On Thursday, crude futures rose as Libya’s National Oil Corporation announced production fell to just 171,000 barrels a day from pre-Civil War highs of over 1.5 MMbbl/d. The Libyan government is currently engaged in negotiations with protesters to restart production at the 350,000 bbl/d Sharara oilfield. Later in the day, crude futures continued to rise as the U.S. Department of Labor released data showing new jobless claims fell by 10,000 claims to 311,000, which was better than analyst expectations. WTI crude futures closed for the day at $101.28 per barrel, up $1.02.

Natural gas prices

Henry Hub natural gas futures rose nearly 5% this week boosted by higher-than-normal inventory withdrawals for this time of the year. Current working gas in storage is at 896 Bcf, the lowest level since 2003 and half of last year’s 1,795 Bcf.

Daily closing price
Note: Intra-day prices (every 6 hours); April month futures expired on March 27, 2014
Data source: Bloomberg

  1. Last Friday, natural gas futures fell as the National Weather Service (NWS) showed below-average temperatures in the 6–10 day forecast giving way to average to above-average temperatures in the 8–14 day forecast. With spring on the way, many investors expect to see only a few more storage draws on gas inventories before the injection season begins. Henry Hub natural gas futures fell 5.6 cents to close at $4.313 per MMBtu.
  2. On Monday, natural gas futures extended losses as private weather forecasters predicted the late-March cold snap would give way to warmer temperatures in early April. Current natural gas inventories are under 1 Tcf, almost half the level at the same time last year and almost 900 Bcf below the five-year average. Some investors expect rising natural gas production and easing electricity sector demand will begin building inventory levels. Henry Hub natural gas futures closed down 3.7 cents at $4.276 per MMBtu.
  3. On Tuesday, natural gas futures rose as investors looked for another draw on inventories in this week’s natural gas data from the EIA. This month’s cold conditions were expected to show an above-average draw on weekly inventories even though the NWS 6–10 and 8–14 day forecasts showed temperatures moderating. Part of the price increase was driven by short covering ahead of the contract’s close later in the week. Henry Hub natural gas futures closed up 13.5 cents at $4.411 per MMBtu.
  4. On Wednesday, natural gas futures fell as weather forecasts from the NWS showed average temperatures across most of the country, with above-average temperatures in the Northwest and central part of the South. Upside activity helping to keep losses limited was driven by speculation this week’s EIA data would show an above-average decline in natural gas inventories due to cold conditions earlier in the month. The EIA reports its data one week in arrears. Henry Hub natural gas futures closed down 0.9 cents at $4.402 per MMBtu.
  5. On Thursday, natural gas futures surged as the EIA reported inventories fell by 57 Bcf to 896 Bcf, the lowest level for this time of year since 2003. The withdrawal compared bullishly with the five-year average withdrawal of 7 Bcf and current inventory levels are just half last year’s 1,795 Bcf. Henry Hub natural gas futures for April delivery rose 18.2 cents and expired at $4.584 per MMBtu.

Futures curve

The forward curve for WTI crude continues to be in backwardation with December 2014 WTI futures 6.5% lower than near-month (May) futures due to rising North American crude supplies. The EIA expects U.S. crude production to average 8.39 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 (May) prices are 4.4% 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) 15.09 14.95 0.94%
Gasoline Demand (MMBPD) 9.00 8.51 5.76%
Distillate Demand (MMBPD) 3.48 4.16 -16.35%
Production (MMBPD) 8.19 8.22 -0.36%
Imports (MMBPD) 7.62 7.31 4.24%
Stocks (million barrels) 382.5 375.9 1.76%
Rotary Rig Count 1,473 1,461 0.82%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 896 953 -5.98%
Rotary Rig Count 326 344 -5.23%
Horizontal Rig Count 1,206 1,212 -0.50%
Consumption (Bcf)* 2,912 (Dec 13) 2,305 (Nov 13) 26.32%
Gross Withdrawals (Bcf)* 2,627 (Dec 13) 2,559 (Nov 13) 2.64%
Canadian Imports (Bcf)* 270.1 (Dec 13) 215.9 (Nov 13) 25.11%
LNG Imports (Bcf)* 2.73 (Dec 13) 2.69 (Nov 13) 1.34%

Notes:
NC: No Change
* 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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