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Weekly Oil & Gas Market Highlights: June 6, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures June 06, 2013 May 30, 2013 % Change
Oil – WTI
(USD per barrel)
$94.76 $93.61 1.2%
Oil – Western Canadian Select*
(USD per barrel)
$79.01 $74.11 6.6%
Oil – Brent
(USD per barrel)
$103.61 $102.19 1.4%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.83 $4.02 -4.9%

Data sources: Bloomberg; CME Group
* Western Canadian Select 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 1.2% this week, supported by positive economic data from the Eurozone and a higher-than-expected fall in U.S. inventory.  Earlier in the week, prices fell on news that Organization of the Petroleum Exporting Countries (OPEC) will maintain its production quota at 30 MMbbl/d, versus expectations of moderation in crude supply.

Oil

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

  1. Last Friday, crude futures remained largely unchanged during Asian trading.  However, futures fell later in the day as OPEC maintained its official production quota at 30 MMbbl/d, squashing any expectations of a production cut.  OPEC production is currently running above quota; in May, it increased slightly by 0.3% to an average of 31.03 MMbbl/d, according to an industry survey by Bloomberg. Secretary-General Abdallah El Badri stated that the organization has no formal target for crude prices. Crude futures also fell in New York trading as investors closed positions ahead of the weekend. WTI crude for July delivery closed down $1.64 at $91.97 per barrel on the NYMEX.
  2. On Monday, crude futures fell to a one-month low as manufacturing news from China sent mixed signals for growth in crude demand.  China’s official Purchasing Manager’s Index (PMI) rose to 50.8 in May from 50.6 in April, which indicates continuing growth in the industrial sector.  However, HSBC’s private PMI estimate showed a decline to 49.2 in May from 50.4 in April. Oil prices began to rise later in the day as London’s Markit Economics reported that the PMI for the Eurozone rose to 48.3 in May from 46.7 in April, which was above analyst expectations. The U.S. PMI reported by the Institute for Supply Management fell to 49 in May from 50.7 in April. The decline in the figure was bearish for the U.S. economic outlook and increased expectations that the Federal Reserve would continue its bond buying program. The speculation sent the dollar lower versus a basket of currencies, which is bullish for crude. WTI crude futures for July delivery closed up $1.48 at $93.45 per barrel.
  3. Crude futures fell during Asian trading on Tuesday as investors booked profits following Monday’s >1.5% rise in prices. Later in the day, crude futures rose as the American Petroleum Institute (API) released its weekly crude inventory report, which projected that crude inventories fell by 7.79 MMbbl last week. The news sent futures rising briefly before falling again due to pessimistic sentiment about oil demand growth and ample supplies. The president of the Federal Reserve of Atlanta stated that the Fed is committed to stimulus measures even though the committee members differ on when to end the program.  The news was supportive for crude prices. Crude futures closed for the day at $93.31 per barrel, down $0.14.
  4. On Wednesday, the U.S. Energy Information Administration’s (EIA) weekly oil inventory data showed that crude stockpiles fell by 6.3 MMbbl last week, which was well above analyst expectations.  It was the largest decline in crude inventories this year.  Stockpiles fell from an 81-year high last week to 391.3 MMbbl, just 1.7% above last year’s level.  Refineries increased utilization by 2 percentage points to 88.4% in response to the driving season in the U.S. Meanwhile, crude production of 7.30 MMbbl/d exceeded crude imports of 7.27 MMbbl/d for the first time in 16 years. Later in the day, U.S. government officials released information that the government expects to extend exemptions for Iranian sanctions to several countries including China, India, Taiwan, and Turkey. WTI crude futures increased $0.43 to close at $93.74 per barrel.
  5. On Thursday, crude futures rose as European Central Bank (ECB) President Mario Draghi announced that the ECB Governing Council left interest rates unchanged at 0.5% after reducing the rate by a quarter percentage point last month.  Draghi stated that European economic recovery should continue and stabilize at a modest pace over 2013.  The news sent the euro to a four-week high versus the dollar, which is bullish for crude demand. In the U.S., futures rose as the Department of Labor reported that new jobless claims fell by 11,000 to 346,000 last week, which was in line with analyst expectations. WTI crude futures closed for the day at $94.76 per barrel, up $1.02.

Natural gas prices

U.S. Henry Hub natural gas futures remained largely unchanged this week before falling sharply (down 4.3%) on the last day.  Prices tumbled after the EIA reported a steep rise in inventory, increasing 111 Bcf, which exceeded the most bearish estimates.

Natural Gas

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

  1. Last Friday, U.S. Henry Hub natural gas futures fell below $4 per MMBtu as above-average temperatures covered much of the Northeast.  The 6–10 day forecast from the National Weather Service (NWS) called for above-average temperatures in the West and the Northeast.  However, some traders expect that the warm trend may soon subside, dragging gas futures down with the temperature. Nuclear power plant outages failed to provide a boost as outages were 12,400 MW, which is below last year’s outages of 12,600 MW and the five-year average outage of 13,700 MW.
    Baker Hughes reported that the gas-directed rig count was unchanged at 354 for the second week in a row. Henry Hub natural gas futures for July delivery closed down 3.9 cents at $3.984 per MMBtu.
  2. On Monday, natural gas futures rose as traders bought in to last week’s 6% decline in prices.  The front-month contract fell more than 8% in May, the highest decline since last August. Futures rose on technical buying despite revised weather forecasts from the National Weather Service (NWS) calling for moderating temperatures over the next two weeks.  The revised 6–10 day forecast showed the Northeast and eastern half of the country experiencing below-average temperatures and the West reporting above-average temperatures.  The 8–14 day forecast showed below-average temperatures persisting in the East. Natural gas futures closed up 0.7 cents at $3.991 per MMBtu.
  3. Tuesday trading saw natural gas futures rise, driven by forecasts from the National Hurricane Center (NHC) showing a 40% chance that a low-pressure system in the Gulf of Mexico would develop into a tropical storm.  Although there was little expectation that the storm would disrupt oil and gas supplies, the news signaled the beginning of the hurricane season.  However, forecasts for mild temperatures across the eastern part of the country limited the rise. Henry Hub natural gas futures closed up 0.7 cents at $3.998 per MMBtu.
  4. On Wednesday, natural gas futures rose slightly as the NHC increased the chances of tropical storm from 40% to 60%.  However, overall trading volumes were light and three days of upside moved futures prices only 1.7 cents.  Many bulls stayed on the sidelines, awaiting EIA’s weekly natural gas storage report to determine market direction. Natural gas futures inched up 0.3 cents to close at $4.001 per MMBtu.
  5. On Thursday, natural gas prices tumbled as the EIA released data showing a bearish 111 Bcf build in natural gas inventories.  The figure exceeded the highest analyst estimates and was above the five-year average build of 92 Bcf.  At 2,252 Bcf, working natural gas in storage is currently 21% below last year’s level and 3% below the five-year average.  With no current forecasts of a heat wave to drive summer demand, prices tumbled below support level at $3.90 per MMBtu. The NHC announced that tropical storm Andrea, the first of the season, in the Gulf of Mexico is heading toward Florida. However, the storm is not expected to affect oil and gas supplies in the region. Natural gas futures closed for the day at $3.827 per MMBtu, down 17.4 cents.

Futures curve

February 2014 WTI futures are 2.1% lower than current prices due to growing North American supply and weak demand growth in major economies globally.  However, February 2014 natural gas futures are at a premium of 9.1% to near-month (July) futures due to moderating supply growth and increased demand from commercial and residential sectors.

Oil & Gas

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.46 15.03 2.86%
Gasoline Demand (MMBPD) 8.82 8.96 -1.56%
Distillate Demand (MMBPD) 3.75 3.82 -1.83%
Production (MMBPD) 7.30 7.29 0.14%
Imports (MMBPD) 7.27 7.81 -6.91%
Stocks (million barrels) 391.3 397.6 -1.58%
Rotary Rig Count 1,410 1,402 0.57%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,252 2,141 5.18%
Rotary Rig Count 354 354 0.00%
Horizontal Rig Count 1,089 1,087 0.18%
Consumption (Bcf)* 2,557 (Feb 13) 2,863 (Jan 13) -10.69%
Gross Withdrawals (Bcf)* 2,320 (Feb 13) 2,542 (Jan 13) -8.73%
Canadian Imports (Bcf)* 228.8 (Feb 13) 262.9 (Jan 13) -12.97%
LNG Imports (Bcf)* 11.4 (Feb 13) 13.5 (Jan 13) -15.56%

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 paper Exporting the American Renaissance: Global impacts of LNG exports from the United States describes an objective, economic-based analysis of the potential impact of LNG exports from the United States on domestic and global markets. While much attention has focused on the impact of U.S. LNG exports on the U.S. market, this study from Deloitte MarketPoint LLC and the Deloitte Center for Energy Solutions analyzes the potential economic consequences of those exports on global markets. It attempts to estimate the potential price impacts, gas supply changes, and flow displacements if the U.S. exported a given volume of LNG to either Asia or Europe.

Deloitte's 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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November 19, 2013
Deloitte Oil & Gas Conference
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