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Weekly Oil & Gas Market Highlights: February 28, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) February 28, 2013 February 21, 2012 % Change
Oil – WTI
(USD per barrel)
$92.05 $92.84 -0.9%
Oil – Brent
(USD per barrel)
$111.38 $113.53 -1.9%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.49 $3.25 7.4%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude oil futures ended ~1% lower this week, primarily due to the inconclusive outcome of the elections in Italy and traders’ concerns over U.S. talks on spending cuts. However, positive economic data from Germany and a smaller-than-expected gain in U.S. inventory lent some support to the prices.

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

  1. Last Friday, crude futures rose during the day, supported by an increase in Germany’s business confidence index, which rose from 104.3 in January to 107.4 in February, beating analysts’ expectations. The rising indicator supported optimism that Europe’s largest economy is showing modest signs of recovery. Traders were also anticipating the results of the election in Italy over the weekend, which has the potential to reverse government austerity programs that helped to reduce government borrowing costs and put the country on the path to economic recovery. Traders were also eyeing the progress of talks between the White House and Congress over across-the-board spending cuts known as sequestration, which would reduce federal spending by $85 billion in 2013 and $1.2 trillion over the next 10 years. The Congressional Budget Office has estimated that sequestration could lower U.S. GDP by 0.6% and cost 750,000 jobs, which is bearish for U.S. economic recovery and crude futures. The annual U.S. government budget of approximately $3.5 trillion per year reflects a projected annual deficit of about $1 trillion for FY13. WTI crude futures closed up 29 cents on Friday at $93.13 per barrel.
  2. On Monday, crude futures fell during Asian trading as China’s preliminary Purchasing Managers Index (PMI) fell from 52.3 in January to 50.4 in February, indicating that growth may be slowing in the world’s second-largest oil importing country. Traders are awaiting the official PMI data from the National Bureau of Statistics next month. Crude futures jumped to an intraday peak of $94.46 per barrel as traders hoped that a pro-reform government would emerge from the general election in Italy. Dollar index against a basket of six major currencies, including the euro, fell 0.3% to trade at 81.31. However, following the inconclusive results of the election, futures fell, which erased earlier gains. The Democratic Party’s Pier Luigi Bersani, who pledged to maintain budget austerity, won the lower house of parliament, but Silvio Berlusconi will control a blocking minority in the senate. Some speculated that another election may be required soon to break what appears to be a political stalemate in parliament. Uncertainty over the results helped pushed the euro lower versus the dollar. Further on the downside, the U.S. regional Federal Reserve banks reported that the National Activity Index turned negative, falling from +0.25 in December to -0.32 in January. Futures closed for the day at $93.11 per barrel, down 2 cents.
  3. On Tuesday, crude futures extended losses into Asian trading as more fallout emerged from the inconclusive elections in Italy. Political analysts expect that the country will operate in a political vacuum for at least a month until another election is called in the near future. As a result of the election, the Italian stock market was down 4% with bank stocks leading the market with a 7% decline in value. The yield on the 10-year Italian bond rose to 4.9% sparking concerns about the economic outlook for the country, which has a 120% debt-to-GDP ratio. Futures began rising later in the day, partially offsetting earlier losses as U.S. economic indicators showed positive signs of recovery. Federal Reserve Chairman Ben Bernanke strongly committed to continuing bond-buying to boost the economy. U.S. consumer confidence rose from 58.4 in January to 69.6 in February, well above analysts’ expectations. Also lending support to futures, the S&P/Case-Shiller index showed a 6.8% year-on-year increase in property values in December and the Department of Commerce reported that new home sales were up 15.6% in January. Futures closed down 48 cents at $92.63 per barrel.
  4. Crude futures traded in a seesaw session on Wednesday ahead of the outcome of the talks between the West and Iran in Kazakhstan. Although details of the discussions were not disclosed, senior U.S. officials confirmed that a new agreement had been made with Iran to ease some of the sanctions, but not those on oil or banking. Iran’s nuclear negotiator Saeed Jalili declared the discussions a “turning point” in the negotiations. Technical discussions will be held in Istanbul on March 18 to work out further details. Futures trended upward later in the day as Energy Information Administration (EIA)’s weekly oil stocks data showed a build of just 1.13 MMbbl, lower than analysts’ expectations, signaling stronger-than-expected demand. However, U.S. crude stocks are currently at 377.5 MMbbl, the highest on record for this time of year since the EIA began keeping records in 1982. Inventories of gasoline were down 1.86 MMbbl, exceeding analysts’ expectations, while distillate stocks increased nearly 560,000 bbl to 124.2 MMbbl. Refinery utilization increased 2.2% to 85.1%. Crude futures closed for the day at $92.76 per barrel, up 13 cents (0.1%).
  5. On Thursday, futures were poised to close down for the month, for the first time since October 2012. Traders were largely sitting on the sidelines ahead of sequestration talks on Friday. Recent positive economic indicators may turn negative if the Congressional Budget Office’s estimate of a 0.6% decline in U.S. GDP is accurate. Futures got some support later in the day as the Department of Commerce released a revised fourth-quarter GDP estimate that showed a 0.1% increase, reversing an earlier estimated 0.1% decline. U.S. annualized GDP growth for 2012 was 2.2%, up from 1.8% in 2011. Also lending support, U.S. unemployment claims fell by 22,000 to 344,000, exceeding analysts’ expectations. The jobs claims figure was the lowest since June 2008—the beginning of the current economic slowdown. However, futures continued to fall as traders were concerned about rising the U.S. dollar and high domestic supplies. Futures closed at $92.05 per barrel, down 71 cents (0.8%)

Natural gas prices

U.S. Henry Hub natural gas futures rose more than 7% this week due to colder-than-expected weather forecasts. Positive inventory data also supported the prices—the EIA reported a draw of 171 Bcf for last week, which is ~50% higher than the five-year average.

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

  1. Last Friday, Henry Hub natural gas futures for March delivery closed up 4.5 cents at $3.291 per MMBtu, driven by forecasts of colder weather, particularly in the eastern half of the country over the next two weeks. The 6–10 day forecast from the National Weather Service (NWS) predicts a large area of below-average temperatures centered in the Southeast, which will spread west into Texas and north to Pennsylvania. Above-average temperatures cover the western part of the country and parts of Maine. Also lending support to gas prices, nuclear power plant outages were over 15,000 MW, boosting replacement demand for natural gas. Baker Hughes reported the natural gas rig count for the prior week rose by 7 rigs to 428.
  2. On Monday, natural gas futures surged higher, driven by colder-than-expected weather forecasts over the next two weeks, which were projected to increase heating demand. Expectations increased for colder-than-anticipated weather in March as the NWS’s 6–10 day forecast showed below-normal temperatures persisting in the Southeast and spreading outward to Texas, South Dakota, and New York. The area of warmer-than-normal temperatures contracted in the revised forecast to a smaller portion of the country near the West Coast and the tip of Maine. Independent forecaster, The Commodity Weather Group, predicted that a blocking pattern would maintain the cold temperatures through the two-week forecast period. Natural gas futures closed up 12.3 cents (nearly 4%) at $3.414 per MMBtu.
  3. On Tuesday, natural gas futures for March delivery expired up 1.3 cents at $3.427 per MMBtu. April futures moved into the front-month position and closed down 1.4 cents at $3.456 per MMBtu. The March contract rallied over 5.5% in the three sessions prior to its expiration, driven by colder-than-expected weather forecasts for the month of March. However, with shoulder season just getting started, EIA’s reported weekly natural gas storage withdrawals will likely need to be very robust in comparison to the five-year and one-year averages to support current price levels.
  4. Natural gas futures ended lower on Wednesday on profit-taking following the recent rally in futures prices. Prices briefly rose above $3.50 per MMBtu, driven by NWS forecasts of a colder-than-expected March across the eastern part of the country, but a sell-off quickly followed. Traders are hopeful that the colder temperatures will produce an above-average gas storage draw that would be bullish for futures, while some analysts are concerned that gas in storage may close the heating season over 2 Tcf, or more than 15% above average. Henry Hub natural gas futures for April delivery closed down 2.2 cents at $3.434 per MMBtu.
  5. On Thursday, natural gas futures for April delivery closed up 5.2 cents (1.5%) at $3.486 per MMBtu after briefly crossing the $3.50 per MMBtu threshold during the day. The rise in futures was driven by bullish weekly natural gas data from the EIA, which revealed a larger-than-expected 171 Bcf draw on gas inventories. Working natural gas in storage now stands at 2,229 Bcf. Not only did the draw exceed expectations but it was both above the five-year average of 118 Bcf and last year’s draw of 106 Bcf.

Futures curve

November 2013 WTI futures are less than ~1% higher than current prices, reflecting the average cost of carry, which is offset by limited upside in demand and adequate supply. However, the November 2013 natural gas futures are at a premium of 8.4% to near-month (April) futures due to moderating supply growth and increased demand from commercial and residential sectors.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 14.51 14.18 2.33%
Gasoline Demand (MMBPD) 8.6 8.44 1.90%
Distillate Demand (MMBPD) 3.5 3.81 -8.14%
Production (MMBPD) 7.01 7.12 -1.54%
Imports (MMBPD) 7.96 7.69 3.51%
Stocks (million barrels) 377.5 376.4 0.29%
Rotary Rig Count 1,329 1,337 -0.60%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,229 2,400 -7.13%
Rotary Rig Count 428 421 1.66%
Horizontal Rig Count 1,140 1,139 -0.35%
Consumption (Bcf)* 2,154 (Nov 12) 1,892 (Oct 12) 0.09%
Gross Withdrawals (Bcf)* 2,506 (Nov 12) 2,569 (Oct 12) -2.45%
Canadian Imports (Bcf)* 219.3 (Nov 12) 242.3 (Oct 12) -9.49%
LNG Imports (Bcf)* 14.2 (Nov 12) 10.4 (Oct 12) 36.54%

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

Learn more

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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.

Deloitte MarketPoint LLC can help Energy & Resources companies with their most strategic business decisions. Deloitte MarketPoint's analytic suite, called MarketBuilder, is a data analytics solution that helps clients understand future markets and prices for most energy commodities, including oil, gas, refinery products, electricity, emissions, and coal, at each point in the value chain. For more information on how Deloitte MarketPoint can help you make more strategic decisions, please visit www.deloittemarketpoint.com or email deloittemarketpoint@deloitte.com.

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May 21-22, 2013
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November 19, 2013
Deloitte Oil & Gas Conference – Houston, TX
For more information, please contact OilandGasConference@deloitte.com

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