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Weekly Oil & Gas Market Highlights: December 19, 2013

Deloitte Center for Energy Solutions publication

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Due to the holidays, we will not be publishing this report for the next two weeks. Publication will resume on January 10th, 2014.

Key Oil & Gas price indicators

Front Month Futures December 19,
2013
December 12,
2013
% Change
Oil – WTI
(USD per barrel)
$98.77 $97.50 1.3%
Oil – Western Canadian Select*
(USD per barrel)
$75.52 $68.38 10.4%
Oil – Brent
(USD per barrel)
$110.29 $108.67 1.5%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.46 $4.41 1.2%

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 1.3% this week driven by growing confidence about U.S. economic growth as signaled by the tapering of Fed’s bond-buying program. Positive U.S. crude inventory data also supported the prices, while Libya continued to fuel uncertainty in the market.

Closing price
Note: Intra-day prices (every 6 hours); January month futures expired on December 19, 2013
Data source: Bloomberg

  1. Last Friday, crude futures were largely unchanged during Asian trading as investors eyed events in Iran for market cues. Under pressure from the White House, the U.S. Congress agreed to delay a vote on new sanctions against Iran for six months to allow time for negotiations with Iran to progress. The Obama administration also banned over a dozen companies and individuals from doing business in the U.S. or with American companies due to their business relations with Iran. Iranian negotiators temporarily suspended negotiations with the six powers following the announced list of banned entities. Negotiations over Iran's nuclear program have the potential to return around 1 MMbbl/d of crude to world markets if successful. Later in the day, oil futures came under pressure as Libya announced it would reopen oil export terminals in the eastern part of the country. Continued labor unrest in the country has reduced Libya's oil exports to around 0.25 MMbbl/d from 1.6 MMbbl/d. During New York trading, concerns grew over speculated voting by the Federal Open Market Committee (FOMC) to wind down the bond-buying program when the committee meets on Tuesday and Wednesday next week. WTI crude futures for January delivery closed down $0.90 at $96.60 per barrel.
  2. On Monday, crude futures rose as Libyan rebels refused to open many of the nation's oil export terminals. On Sunday, a Libyan rebel leader, Ibrahim al-Jathran, stated he would not reopen the ports because his demands for more regional autonomy were not being met by the government. Fears of tighter oil supplies in world markets drove investor sentiment throughout the trading day. During New York trading, investors speculated that the Fed would not announce any potential change in its bond-buying program until after the FOMC meeting concludes on Wednesday. WTI crude futures rose $0.88 to close at $97.48 per barrel.
  3. On Tuesday, crude markets were largely quiet as investors sought direction from the outcome of the Federal Reserve meeting and data from the Energy Information Administration (EIA). Investors were expecting a strong draw on crude inventories in the EIA data as Gulf Coast refiners typically delay crude imports at the end of the year in order to lower their tax burden. Domestic crude inventories typically displace imported crude during this time of year. WTI crude futures closed down $0.26 at $97.22 per barrel.
  4. On Wednesday, crude futures received support as the EIA reported crude stockpiles in the U.S. fell by 2.9 MMbbl, which was above analyst expectations. Crude stocks are currently 372.3 MMbbl according to the data. Gasoline stocks rose by 1.3 MMbbl while middle distillates fell 2.1 MMbbl. Refinery utilization fell 1.1% to 91.5% of capacity. Stocks seesawed later in the day as the Federal Reserve announced it would begin tapering its bond-buying program by $10 billion, from $85 billion to $75 billion. The program has helped support the price of dollar-denominated crude futures since it has been put into place. Some traders feared termination of the program would be bearish for crude. However, bulls noted that according to the Fed, an end to the program means growing strength in the U.S. economy, which should boost crude demand. WTI crude futures rose $0.58 to close at $97.80 per barrel.
  5. On Thursday, the Joint Organizations Data Initiative reported Iraq's crude exports were up 8.8% in October, rising to 2.25 MMbbl/d from 2.07 MMbbl/d in September. Iraq's rising crude exports overcame the decline in Saudi Arabia's crude exports from 7.84 MMbbl/d in September to 7.71 MMbbl/d in October. During New York trading, crude futures rose as traders continued to view the Fed's decision to begin tapering its bond-buying program as a bullish indicator of underlying strength in the U.S. economy. WTI crude futures for January delivery closed up $0.97 and expired at $98.77 per barrel. The February contract moved into the near-month position and closed for the day at $99.04 per barrel, up $0.98.

Natural gas prices

Henry Hub natural gas futures rose over 1% this week due to a record 285 Bcf withdrawal from the inventory reported by the EIA. Earlier, natural gas prices came under pressure due to forecasts of above-average temperatures during the Christmas holiday week.

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

  1. Last Friday, natural gas futures fell on profit-taking after a bull market that drove natural gas prices up nearly 24% over the past six weeks. Nuclear power plant outages of 6,900 MW also failed to provide much support, comparing bearishly with 12,200 MW out a year ago and the five-year average outage of 8,200 MW. Baker Hughes gas-directed rig count fell by 6 units this week to 369. Henry Hub natural gas futures fell 5.8 cents to close at $4.351 per MMBtu.
  2. On Monday, natural gas futures fell on expectations of warmer temperatures around the Christmas holiday. Revised forecasts from the National Weather Service (NWS) showed above-average to average temperatures across much of the country in the 8–14 day forecast. Nearly half of all U.S. households use natural gas for heating. Further adding to the downward pressure on prices, the EIA reported in its early release 2014 Annual Energy Outlook that U.S. natural gas production will rise 56% to 37.6 Tcf/year by 2040. Henry Hub natural gas futures fell 7.2 cents to close at $4.279 per MMBtu.
  3. On Tuesday, natural gas futures rose on expectations of a strong draw in natural gas inventories in this week's EIA data due to cold temperatures in the previous week. Further, traders also looked at well-head freeze-offs, which may have limited production. Inventories are currently 273 Bcf below last year's level and 109 Bcf below the five-year average. Henry Hub natural gas futures ended the day up just 0.8 cents at $4.287 per MMBtu.
  4. On Wednesday, natural gas futures fell on expectations of warmer temperatures next week, which would limit heating demand. Weather forecasts from the NWS showed above-average temperatures along the East Coast in 6–10 day period. However, expectations of below-average temperatures in parts of Midwest and Northeast by the end of December cushioned the losses. Henry Hub natural gas futures for January delivery fell 3.6 cents to $4.251 per MMBtu.
  5. On Thursday, natural gas futures surged as the EIA’s weekly natural gas data showed a record 285 Bcf draw on natural gas inventories last week. The previous record draw was 274 Bcf in January 2008. Natural gas inventories are currently 3,248 Bcf. The figure is 488 Bcf below last year’s level and 261 Bcf below the five-year average. Henry Hub natural gas futures rose 20.9 cents and closed at $4.460 per MMBtu.

Futures curve

The forward curve for WTI crude is in backwardation, with September 2014 WTI futures 5% lower than near-month (January) futures, as rising crude supplies are expected to contribute to pipeline bottlenecks at Cushing despite the start of the Gulf Coast pipeline in early 2014. While the seasonal demand surge drove near-term (January) natural gas prices higher, the expectation of growing 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) 15.93 16.13 -1.24%
Gasoline Demand (MMBPD) 9.02 8.35 8.02%
Distillate Demand (MMBPD) 4.01 3.3 21.52%
Production (MMBPD) 8.06 8.1 -0.49%
Imports (MMBPD) 7.73 6.86 12.68%
Stocks (million barrels) 372.3 375.2 -0.77%
Rotary Rig Count 1,411 1,397 1.00%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,248 3,533 -8.07%
Rotary Rig Count 369 375 -1.60%
Horizontal Rig Count 1,145 1,137 0.70%
Consumption (Bcf)* 1,757 (Sep 13) 1,917 (Aug 13) -8.35%
Gross Withdrawals (Bcf)* 2,465 (Sep 13) 2,540 (Aug 13) -2.95%
Canadian Imports (Bcf)* 227.9 (Sep 13) 227.3 (Aug 13) 0.26%
LNG Imports (Bcf)* 16.9 (Sep 13) 8.8 (Aug 13) 92.05%

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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