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Weekly Oil & Gas Market Highlights: January 31, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) January 31, 2013 January 24, 2012 % Change
Oil – WTI
(USD per barrel)
$97.49 $95.95 1.6%
Oil – Brent
(USD per barrel)
$115.55 $113.28 2.0%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.34 $3.45 -3.1%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude futures rose 1.6% during the week due to persisting Middle East tensions and positive economic news from China and Europe. However, the rise in prices was stalled over the last two trading days as U.S. economic data showed a fall in GDP and an increase in jobless claims.

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

  1. Last Friday, futures ticked downward during Asian trading on bearish oil fundamentals from Energy Information Administration (EIA) data released on Thursday, which showed a 2.81 MMbbl increase in oil stocks. However, futures began rising during New York trading due to positive economic indicators in China and the U.S. China’s manufacturing sector posted a gain in the Purchasing Manager’s Index (PMI), while the country’s GDP grew at an annualized 7.9% in the fourth quarter of 2012. The U.S. equities market has experienced an extended rally over the past several sessions with the S&P 500 closing up for seven straight sessions due to improving domestic economic data. Crude was also supported by the falling dollar versus the euro, which is bullish for dollar-denominated crude. Traders received updated information regarding the “operational issue” at the Seaway pipeline announced on Wednesday, which had reduced oil flows from 400,000 bbl/d to ~175,000 bbl/d. In a clarifying statement, the operators indicated that the reduction was the result of a major refinery lowering demand due to maintenance and not the result of a problem with the pipeline itself. Crude futures fell as the commerce department announced that November home sales fell 7.3% to 369,000 homes, which was below analyst expectations. The drop in new home sales was viewed as bearish for the U.S. economic outlook.
  2. On Monday, crude futures traded largely sideways during Asian trading as Egyptian President Mohammed Morsi declared a state of emergency on Sunday in three provinces near the Suez Canal for 30 days.  A wave of unrest in the region left 50 dead as protests continued into their fifth day against Morsi’s pro-Islamist policies and the slow pace of reform. However, the Suez Canal, through which 3 MMbbl/d of crude flows, was not affected by the violence. Crude futures rose as the U.S. Department of Commerce announced that orders for durable goods in the U.S. rose 4.6% from November to December, which was above analyst expectations. The news increased optimism that the U.S. economy was experiencing signs of recovery. However, given seasonal maintenance at U.S. refineries, futures will encounter headwinds as oil processing temporarily slows. Hess Corporation announced that it would shutter its 70,000 bbl/d Port Reading refinery in New Jersey and convert it to a storage terminal. The facility can store 6 MMbbl of products. The news aided a rise in gasoline futures, which were up 5.94 cents (2%) during the day to close at $2.9348 per gallon. WTI crude futures closed for the day at $96.44 per barrel, up 0.6%.
  3. On Tuesday, futures inched up as Abdalla Salem el-Badri, secretary general of OPEC, stated that the world oil market is currently well-balanced. He stated that oil markets should continue to be well supplied during 2013 and he did not foresee any significant potential for price collapse. He further stated that there was no reason for OPEC to cut output if the economies of the major demand centers are still struggling to recover. Later during the day, crude futures rose over 1% as positive economic news continued to come from the U.S. economy. The S&P/Case-Shiller composite home-price index of 20 metropolitan areas showed a 5.5% increase in single-family home prices in November, the 10th consecutive month of gains. It was also the largest year-on-year rise since August 2006. Although crude futures crossed the $97 per barrel mark on the news, some traders were concerned that the recent rally has been too rapid, with crude futures up nearly 6% since the beginning of January and up almost 10% since December. WTI futures rose $1.13 per barrel to close at $97.57 on Tuesday.
  4. On Wednesday, crude futures rose in Asian trading as tensions mounted in the Middle East with continued unrest in Egypt and Syria. During London trading, the European Commission released its economic sentiment indicator, which showed that business and consumer sentiment rose to 87 from 85.7 in November, the second month of gains in the indicator. European manufacturing sentiment increased from -15 to -14.4 and services sector confidence rose to -9.8 from -11.9, while consumer confidence was up to -26.5. The data showed that business and consumer sentiment are beginning to turn the corner in Europe after falling to historic lows in the second half of 2012. However, futures fell after the Department of Commerce released an advance estimate with surprising data that showed U.S. GDP fell by 0.1% during the last quarter of 2012. Analysts had expected to see a modest increase in GDP. The decline was the first negative GDP growth in over three years. Futures also received downside news as the EIA released its weekly oil inventory report, which showed a bearish 5.947 MMbbl increase in oil inventories last week. The build came even as refiners increased their utilization to 85% of capacity, which was above analyst expectations. Upside news was seen in the products markets as gasoline stocks fell by 956,000 bbl, while stocks of distillates declined 2.315 MMbbl. Futures rose as Federal Reserve Chairman Ben Bernanke stated that the Federal Reserve would maintain its commitment to buy $85 billion in mortgage-backed securities and Treasuries each month, while maintaining low interest rates until unemployment falls below 6.5% and inflation remains under 2.5% per year. Futures closed at $97.94 per barrel, up 0.4%.
  5. Crude futures fell in Asian trading on Thursday as traders took note of the poor GDP performance of the U.S. economy and the bearish build in crude stocks revealed in the prior day’s EIA data. However, rising tensions in the Middle East helped maintain a floor under prices. In a recent move, Israeli jets attacked a convoy inside Syria, which was suspected of carrying Russian-made missile components. The Israeli government believes the assembled missiles could have been used to strike Israel. Syria and Iran have threatened to retaliate against Israel for the airstrike, which could broaden the conflict regionally. Iran is currently under Western-backed oil sanctions, but it still exports 1.2–1.4 MMbbl/d of oil and has threatened to close the Strait of Hormuz if attacked. Futures fell more than $0.50 per barrel as the Department of Labor released data showing that new jobless claims increased by 38,000 to 368,000 last week; analysts had expected the number to decline over the period. Last week’s 45,000 drop in the new jobless claims figure was viewed as bullish for the U.S. economic recovery and oil futures. In other bearish economic news, the Bloomberg Consumer Comfort Index, which broadly measures consumer purchasing confidence, fell to -37.5 over the prior week, the lowest figure since October. Futures closed for the day at $97.49 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures closed down 10.7 cents at $3.339 per MMBtu as the 6-10 day forecasts showed below-average temperatures across much of the U.S. However, later in the week, natural gas prices received some support from inventory data that showed a drawdown of 194 Bcf.

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

  1. Last Friday, natural gas futures for February delivery ended a see-saw session at $3.444 per MMBtu, down just $0.02. The contract was under pressure from warmer weather forecasts for the next week, which was expected to reduce heating demand. The Commodity Weather Group said that it expected “impressive” warming to occur next week. However, the National Weather Service’s (NWS) 6–10 day forecast showed below-average temperatures across much of the eastern half of the U.S. Baker Hughes rig count data on Friday showed that gas-directed rig count rose by 5 to 434, still only just above the 13-year low of 413 reached in early November.
  2. On Monday, natural gas futures fell 15.5 cents (4.5%) to close at $3.289 per MMBtu, the fifth straight day of decline. The front-month contract has lost nearly 8% over the past five sessions as weather forecasts show warmer temperatures spreading across much of the country. The 6–10 day forecast from the NWS on January 28 predicted significant warming in the Midwest radiating out to the Great Lakes and Gulf of Mexico as well as California and parts of Washington state. Some traders are concerned that the remaining days of winter will not be enough to reduce gas in storage, which would be bearish for natural gas prices.
  3. Natural gas futures for February delivery expired down 6.3 cents (~2%) on Tuesday, closing at $3.226 per MMBtu. The contract had fallen 9.5% over the past six sessions due to increasingly bearish weather forecasts and an ample supply of natural gas in inventory. Private forecaster MDA Weather Services’s data showed temperatures remaining warm in its 6–10 day forecast. Natural gas futures received some support from nuclear power plant outages that are at 9,000 MW this week, which is 2,700 MW above average.
  4. On Wednesday, natural gas futures rose for the first time in seven sessions as traders locked in bullish positions ahead of EIA’s weekly natural gas data. Some traders are expecting the data to show a large inventory draw as a result of the colder temperatures that blanketed much of the country during the prior week. However, the NWS 6–10 day forecast continued to show above-average temperatures across much of the country centered around the Midwest, while its 8–11 day forecast showed the warmer temperatures moving eastward as below-average temperatures move in to California and parts of the Southwest. Henry Hub futures for March delivery closed up 7.7 cents at $3.335 per MMBtu.
  5. On Thursday, natural gas futures fell nearly 8 cents as EIA’s weekly natural gas inventory report showed a 194 Bcf draw on inventories which was below analyst expectations. However, futures began to rise shortly after the news, as some traders believed the draw compared favorably to last year’s 149 Bcf inventory pull and the five-year average withdrawal of 178 Bcf. Working gas in storage has fallen to 2802 Bcf — 7% lower than an year ago. Bearish weather signals remain on the horizon, however, as the 6–10 day forecast from the NWS continues to show above-average temperatures across the Midwest and eastern part of the country, while the area of cooler weather in the Southwest contracts slightly. Natural gas futures for March delivery closed up 0.4 cents at $3.339 per MMBtu.

Futures curve

October 2013 WTI futures are just 1% higher than current prices, reflecting the average cost of carry, limited upside in demand, and adequate supply. However, the October 2013 natural gas futures premium widened to 9.6% due to the recent fall in near-month (February/March) 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) 14.48 14.21 1.90%
Gasoline Demand (MMBPD) 8.50 8.43 0.83%
Distillate Demand (MMBPD) 3.72 3.37 10.39%
Production (MMBPD) 6.99 6.99 0.00%
Imports (MMBPD) 8.07 7.73 4.40%
Stocks (million barrels) 369.1 363.1 1.65%
Rotary Rig Count 1,315 1,316 -0.08%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,802 2,996 -6.48%
Rotary Rig Count 434 429 1.17%
Horizontal Rig Count 1,127 1,127 0.00%
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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Deloitte's new paper Energy Independence and Security: A Reality Check, discusses the realities of U.S. energy independence and energy security — and whether these are realistic and achievable goals. Understanding how to reach energy independence and security requires us to know more about our sources and uses of energy — and the realities of energy supply and demand.

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