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Weekly Oil & Gas Market Highlights: December 5, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures December 5,
2013
November 21,
2013
% Change
Oil – WTI
(USD per barrel)
$97.38 $95.44 2.0%
Oil – Western Canadian Select*
(USD per barrel)
$65.76 $57.14 15.1%
Oil – Brent
(USD per barrel)
$110.98 $110.08 0.8%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.13 $3.70 11.6%

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 by 2 percent over the past two weeks, primarily due to news on the upcoming 700,000 bbl/d pipeline between Cushing and Gulf Coast and the positive economic data from the United States.  Prices fell during the first week due to bearish crude inventory data and progress on Iranian nuclear talks.

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

  1. On Friday, November 22, the Brent/WTI spread widened to $16.21 per barrel, the highest level since March, as the two benchmark crudes moved in opposite directions.  Brent futures advanced as ongoing unrest in Libya continues to limit crude output to around a third of the country’s 1.6 MMbbl/d capacity.  Brent futures were also supported by continuing talks, without any concrete results, among world powers and Iran over the country’s nuclear program.  The oil embargo against Iran has kept approximately 1 MMbbl/d of production off world markets. During U.S. trading, investors noted a rising refinery demand following the end of seasonal maintenance at U.S. refineries.  However, the current 45 MMbbl overhang of supplies to the five-year average weighed bearishly on WTI prices. Crude prices fell later as U.S. officials stated Secretary of State, John Kerry, was travelling to Geneva to continue talks with Iran.  Russian Foreign Minister, Sergey Lavrov, announced he would join the discussions in Geneva.  The news helped reverse earlier market pessimism over the Iran nuclear deal and pushed WTI futures lower. WTI crude futures for January delivery closed down $0.60, at $94.84 per barrel.
  2. On Monday, crude futures eased following the agreement between the six world powers and Iran to provide $7 billion in sanctions relief in exchange for steps to limit Iran’s nuclear activities.  Futures fell nearly 1% on the news.  Under the western oil embargo, Iran’s six remaining crude purchasers (China, India, Japan, South Korea, Taiwan and Turkey) make crude purchases with their own currencies instead of U.S. dollars.  These funds are placed in bank accounts that are used to purchase domestic goods from the trading partners.  According to U.S. Department of Treasury estimates, sanctions placed on Iran since 2010 have cost the country a total of $120 billion. WTI crude futures for January 2014 delivery closed down $0.75, at $94.09 a barrel.
  3. On Tuesday, crude futures rose during Asian trading as investors viewed the decline the previous day as overly pessimistic.  As the main ban on Iran’s oil exports remains in place, traders were looking to the next OPEC meeting for any potential shift in quotas.  If Iranian supplies returned to world markets, Saudi Arabia could accommodate the additional supply by lowering its crude output. Crude futures reversed course and fell later in the day on speculation of another increase in crude supplies in this week’s U.S. petroleum data from the Energy Information Administration (EIA).  If proven correct, it would be the 10th straight week of increases in crude stocks. WTI crude futures fell by $0.41, to close at $93.68 per barrel.
  4. On Wednesday, crude futures fell to a six-month low as data from the EIA showed crude stocks rising by 2.95 MMbbl, to 391.4 MMbbl, the highest levels since June this year.  Crude stocks have risen for ten consecutive weeks, rising by 35.8 MMbbl, a 10% rise over the period.  Investors saw further bearish news in the production data, which showed current domestic production of over 8 MMbbl/d, which is the highest level of production since 1989.  Increased refinery utilization, which rose by nearly 1% to 89.4%, was not enough to draw down rising supplies. The decline in WTI futures widened the Brent/WTI spread to nearly $19 per barrel, the highest level since March 2013. WTI crude for January delivery fell by $1.38, to close at $92.30 per barrel.
  5. On Thursday, the NYMEX was closed for the Thanksgiving holiday in the United States.
  6. Crude rose marginally in holiday-shortened trading on Friday, as investors eyed the upcoming meeting of OPEC on December 4 in Vienna.  OPEC countries are expected to discuss whether changes are warranted in the organization’s current quotas, given rising U.S. production, increased exports of Iraqi crude, and the potential complete or partial lifting of oil sanctions against Iran. OPEC’s current production quota set two-years ago is 30 MMbbl/d. WTI futures were up $0.42, at $92.72 per barrel.
  7. On Monday, WTI futures were up driven by positive economic news out of China, Europe and the United States.  Crude prices rose during Asian trading following a report that China’s official Purchasing Manager’s Index (PMI) for November rose to 51.4, which was above analyst expectations. Futures received further support later in the day as bearish concerns about the return of Iranian crude supplies to world markets eased. Traders noted the current draft agreement between Iran and world powers will require further clarifications in continued discussion among the parties.  Further, the draft agreement contains no quota or target for Iran’s crude output. Further bullish news was seen in the UK’s reported PMI, which rose to 58.4 in November from 56.5 in October.  The Institute for Supply Management reported the U.S. PMI rose to 57.3 in November from 56.4 in October.  It was the highest PMI figure for the U.S. since April 2011. WTI crude futures closed up $1.10, at $93.82 per barrel.
  8. On Tuesday, crude futures climbed over 2% on news that a new pipeline to carry crude from Cushing to the Gulf Coast will come online in early January.  The 700,000 bbl/d Gulf Coast Pipeline was expected to help reduce the rising crude stockpiles in Cushing, OK.  Cushing crude stocks were at 40.6 MMbbl, the highest level since July 2013. WTI crude futures closed up $2.22, at $96.04 per barrel.
  9. On Wednesday, OPEC agreed to maintain its 30 MMbbl/d production quota.  However, crude futures came under downward pressure as oil ministers from Iraq, Libya, and Iran stated their plan to boost supplies soon.  According to Iran’s Oil Minister, Bijan Zanganeh, the country wants to ramp up production to 4.0 MMbbl/d after sanctions on the country are lifted.  He also stated that Iran would be willing to engage in a price war in order to restore the nation’s production. Later in the day, crude prices rose by 1.2% to a five-week high as government data from the EIA showed the first draw on crude stocks in 11 weeks.  Crude inventories were down 5.6 MMbbl, the largest one-week decline since July, to 385.8 MMbbl.  The fall in stockpiles was supported by rising refinery utilizations—up 3% from last week to 92.4% of capacity— and a slight 0.1% decline in crude production. WTI crude futures closed up $1.16, at $97.20 per barrel.
  10. On Thursday, crude futures eased as the European Central Bank’s (ECB) President, Mario Draghi, indicated further easing measures in the euro-zone were not imminent.  The ECB left interest rates unchanged at record lows. However, futures reversed course later in the day on positive economic news out of the United States.  The Department of Labor reported a fall in new jobless claims to 298,000 last week, down 23,000, representing a six-year low.  Further, the Department of Commerce reported a 3.6% growth in third quarter U.S. GDP.  Continued signs of economic recovery in the world's largest oil market are bullish for crude demand. WTI crude futures closed up $0.18, at $97.38 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures rose nearly 12% during the past two week period, primarily due to forecasts for colder-than-normal winter weather in most parts of the country.  Natural gas broke the resistance price of $4 per MMBtu following the steep fall in EIA’s inventory data last week.

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

  1. On Friday, November 22, natural gas futures rose as forecasts from the National Weather Service (NWS) called for cold weather over the next week, expected to boost natural-gas derived heating demand.  Below-average temperatures were expected to stretch across most of the eastern portion of the country throughout the upcoming week. Baker Hughes weekly rig data showed the gas-directed rig count falling by one unit to 369. Henry Hub natural gas futures closed up 6.6 cents at $3.768 per MMBtu..
  2. On Monday, natural gas futures extended gains as revised 8–14 day forecasts from the NWS showed most of the country experiencing below-average temperatures. Expectations of colder weather were enough to overcome unseasonably low nuclear power plant outages currently at 8,900 MW.  The figure compares bearishly with last year’s 22,500 MW outage and the five-year average outage of 13,200 MW for the same period of the year. Henry Hub natural gas futures closed up 2.1 cents at $3.789 per MMBtu.
  3. On Tuesday, natural gas futures climbed for a fifth straight session on expectations of persisting colder weather in forecasts from the NWS.  Bears, however, are concerned about rising U.S. natural gas production amid ample supplies and low nuclear power plant outages. Henry Hub natural gas futures for December delivery expired up 2.9 cents at $3.818 per MMBtu.  The January contract, which moved into the front-month position, closed up 2.2 cents at $3.864 per MMBtu.
  4. On Wednesday, natural gas futures ended up, driven by the EIA’s report on withdrawals in natural gas inventory.  The government data revealed natural gas inventories fell by 13 Bcf, which was above analyst expectations.  The draw compared bullishly with a 2 Bcf draw during the same period last year, but was largely in line with the five-year average draw of 15 Bcf. Henry Hub natural gas futures for January delivery closed up 3.1 cents at $3.895 per MMBtu.
  5. On Thursday, the NYMEX was closed for the Thanksgiving holiday in the United States.
  6. Last Friday, natural gas futures closed up for the seventh straight trading session in the longest bull run since January 2011.  Natural gas gains of 12.8% over the month of November were the largest monthly gains since last March.  Driving the rise in prices are forecasts for below-average temperatures across much of the country in the 6–10 day forecast from the NWS. Baker Hughes reported the gas-directed rig count fell by 2 to 367 active units. Henry Hub natural gas futures closed up 5.9 cents, to $3.954 per MMBtu.
  7. On Monday, natural gas futures continued their rise for an eighth-straight session, driven by revised forecasts from the NWS showing colder-than-average temperatures for December.  Traders largely dismissed the impact of prevailing mild temperatures. Henry Hub natural gas futures closed up 3.4 cents, at $3.988 per MMBtu.
  8. On Tuesday, natural gas futures closed down for the first time in nine sessions, after briefly rising just above $4.0 per MMBtu before profit-taking and technical selling weighed on prices. Henry Hub natural gas futures closed down 1.2 cents, at $3.976 per MMBtu.
  9. On Wednesday, natural gas futures extended losses for a second day, driven by revised long-term forecasts from the NWS.  The 6–10 day forecast continued to show below-average temperatures across much of the country.  However, the 8–14 day forecast showed the area of below-average temperatures contracting.  Bears saw little support for natural gas prices above $4 per MMBtu after testing resistance the day before. Henry Hub natural gas futures closed down 1.6 cents, at $3.960 per MMBtu.
  10. On Thursday, natural gas futures surged on news of a strong inventory draw in EIA’s weekly data.  Working gas in underground storage fell by 162 Bcf according to the government data.  The draw was above analyst expectations and compared bullishly with a 62 Bcf drop the same time last year and the five-year average withdrawal of 41 Bcf.  After breaking through resistance at $4 per MMBtu, natural gas futures were up over 4.3% on the news – approaching $4.15 per MMBtu. Henry Hub natural gas futures closed for the day at $4.132 per MMBtu, up 17.2 cents.

Futures curve

The forward curve for WTI crude is into backwardation, with September 2014 WTI futures being 3% higher 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 surge drove the near-term (January) natural gas prices higher, the expectation of growing supply in 2014 weighed on September-month futures.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 16.11 15.45 4.27%
Gasoline Demand (MMBPD) 8.87 8.92 -0.56%
Distillate Demand (MMBPD) 3.55 4.33 -18.01%
Production (MMBPD) 8.01 7.97 0.50%
Imports (MMBPD) 7.81 7.86 -0.64%
Stocks (million barrels) 385.8 388.5 -0.69%
Rotary Rig Count 1,391 1,385 0.43%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,614 3,789 -4.62%
Rotary Rig Count 367 370 -0.81%
Horizontal Rig Count 1,127 1,114 1.17%
Consumption (Bcf)* 1,910 (Aug 13) 1,911 (Jul 13) -0.05%
Gross Withdrawals (Bcf)* 2,555 (Aug 13) 2,551 (Jul 13) 0.16%
Canadian Imports (Bcf)* 230.3 (Aug 13) 228.5 (Jul 13) 0.79%
LNG Imports (Bcf)* 8.8 (Aug 13) 8.1 (Jul 13) 8.64%

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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