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Weekly Oil & Gas Market Highlights: August 22, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures August 22, 2013 August 15, 2013 % Change
Oil – WTI
(USD per barrel)
$105.03 $107.33 -2.1%
Oil – Western Canadian Select*
(USD per barrel)
$80.78 $85.01 -5.0%
Oil – Brent
(USD per barrel)
$109.90 $111.11 -1.1%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.55 $3.42 3.7%

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 fell over 2% this week primarily due to news about the U.S. Fed’s plans to curtail its bond buying program. Prices received some support from rising tensions in the North Africa region and positive U.S. inventory data.

Closing price
Note: Intra-day prices (every 6 hours); September month futures expired on August 20, 2013.
Data source: Bloomberg

  1. Last Friday, crude futures rose as traders eyed ongoing demonstrations and violence in Egypt as clashes between pro-Morsi demonstrators and security forces continued. Government forces stormed Ramses Square in Cairo, which led to an estimated death toll of 60 people. Demonstrations, however, continued across other parts of Egypt and have affected several cities, including Alexandria and Port Said. Futures also rose as oil and gas companies began evacuating non-essential personnel from offshore platforms in the Gulf of Mexico due to a tropical storm off the Yucatan Peninsula. The National Hurricane Center (NHC) said the storm had a 50% chance of developing into a hurricane and was forecast to pass through the southwestern portion of the Gulf. The Gulf region accounts for around 5% of U.S. natural gas and 23% of U.S. crude production. Over 45% of U.S. refining capacity lies in the Gulf Coast region. WTI futures for September delivery closed up $0.13 cents at $107.46 per barrel.
  2. On Monday, crude futures received support as data from Japan showed crude imports increased 2.4% in July over June. Futures rose as Egypt’s Ministry of the Interior reported dozens of protestors were detained following an attempted prison break in the country on Sunday. In North Sinai, 25 police officers were killed in an ambush by supporters of ousted President Mohammed Morsi. In Libya, crude oil production and exports remain heavily affected by strikes and militant activity. Libya's oil minister warned that government forces would forcibly remove protestors blocking the country’s oil-exporting ports if they did not disperse. Currently, Libya's oil exports have been reduced to around 0.60 MMbbl/d due to the protests and strikes. Libya has the largest reserves among OPEC's African members. Crude futures fell during New York trading, as the NHC reported the tropical storm heading for the Gulf of Mexico had failed to form into a hurricane over the weekend. Workers began returning to offshore rigs as the threat dissipated. WTI futures fell $0.36 to settle at $107.10 per barrel.
  3. On Tuesday, investors were cautious ahead of the release of the Energy Information Administration's (EIA) weekly oil stocks report and minutes of the July discussions of the Federal Open Market Committee (FOMC), both scheduled for Wednesday. The FOMC was planning to discuss the future of the $85 billion per month bond buying program during the meeting in Jackson Hole, WY, this week. In London trading, crude futures fell on expectations the bond buying program would be curtailed. September WTI crude futures expired on Tuesday, closing down $2.14 at $104.96 a barrel while October futures, which rolled into the front-month position, settled down $1.75 at $105.11 per barrel.
  4. On Wednesday, crude futures rose briefly following the release of EIA inventory data, which showed crude stocks falling by 1.43 MMbbl, beating analyst expectations. Stocks are currently 359 MMbbl, the lowest level in a year due to high refinery utilization rates of 91%. However, futures tumbled as the minutes of FOMC’s July meeting showed that committee members were "broadly comfortable" with plans to begin reducing the monthly amount of bond purchases. Fed Chairman Ben Bernanke said the bank would begin curbing its bond buying program if the U.S. economy starts to improve. The 400,000 bbl/d Seaway pipeline linking Cushing, OK, to refiners in Houston area returned to normal operations after being "essentially shut" on Tuesday as technical issues at the pumping station curtailed the power consumption along the pipeline.WTI futures for October delivery fell $1.26 cents to close at $103.85 per barrel.
  5. On Thursday, crude futures fell during Asian trading despite positive manufacturing data from China, due to concerns about the continuation of the Fed’s bond buying program. After a preliminary survey, HSBC reported that China’s Purchasing Manager's Index (PMI) rose to 50.1 in August, indicating expansion, from 47.7 in July. China is the second-largest oil consuming nation after the U.S. (although the EIA projects it will overtake the U.S. in October of this year) and it accounts for around 40% of the expected 1 MMbbl/d increase in global oil demand this year. During London trading, crude futures received support as Markit Economics’ PMI for Germany rose to 52 in August from 50.7 in July, exceeding analyst expectations. In Libya, oil exports resumed from the 90,000 bbl/d port of Brega, where the country was forced to declare force majeure earlier this week. Currently, export terminals at Zawiya, Mellitah, Al Jurf, and Bouri are operational while Libya's largest oil exporting port Es Sider, as well as Ras Lanuf and Zueitina, remains closed. Crude futures rose as the U.S. Department of Labor reported new jobless claims rose by just 13,000 claims to 336,000. The small increase drove the four-week average figure to 330,500, which is still the lowest level since November 2007. Crude futures closed for the day at $105.03 per barrel, up $1.18.

Natural gas prices

U.S. Henry Hub natural gas futures rose nearly 4% this week boosted by expectations of above-average temperatures in most of the U.S. and lower-than-expected inventory build. Prices were not impacted by the tropical activity news in the Gulf Coast, expecting no threat to production.

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

  1. Last Friday, natural gas futures fell as revised weather forecasts reported below-normal temperatures in parts of U.S. Midwest and Northeast. Forecasts from the National Weather Service (NWS) offered modest support to gas demand with above-average temperatures across much of the northern half of the country. The NHC reported a tropical storm off the Yucatan peninsula had a 50% chance of developing into a hurricane over the next few days. As a result, oil and gas companies began evacuating non-essential personnel from offshore rigs in the Gulf of Mexico. However, futures fell as traders shrugged off the news considering the Gulf of Mexico contributes to just around 5% of U.S. natural gas production. Later in the day, the NHC downgraded Tropical Storm Erin off the Cape Verde Islands to a tropical depression. Baker Hughes reported the number of gas-directed rigs rose by two rigs to 388. Natural gas futures closed down 5.1 cents at $3.368 per MMBtu.
  2. On Monday, natural gas futures rose sharply, driven by forecasts for warmer temperatures across much of the United States. The 6–10 day forecast from the NWS showed key demand centers of the Northeast, Mid-Atlantic, as well as portions of the West and South experiencing above-average temperatures. However, in the 8–14 day forecast, the warmer temperatures were expected to dissipate with only portions of the Southeast and West expected to experience above-average temperatures. Natural gas futures closed up 9.5 cents at $3.463 per MMBtu.
  3. On Tuesday, natural gas futures were nearly unchanged as traders balanced NWS’s forecasts of warmer temperatures in the 6–10 day forecast against moderating temperatures in the 8–14 day forecast. However, bears were expecting this week's natural gas storage report to show an inventory build below above historical averages. Skeptics were concerned the warming trend would not hold over the long term as temperatures begin to moderate. Natural gas futures closed down 1.9 cents at $3.444 per MMBtu.
  4. On Wednesday, natural gas futures rose marginally as traders viewed expectations of near-term warmer temperatures positively, but expected a bearish weekly natural gas inventory report from the EIA. Forecasts from the NWS were modestly supportive with the 6–10 day forecast continuing to show above-average temperatures across much of the northern part of the country. In the revised 8–14 day forecast, the warm trend showed some signs of strength with above-average temperatures expanding across the West Coast and the Northeast. Natural gas futures closed up 1.6 cents at $3.460 per MMBtu.
  5. On Thursday, natural gas futures rose as the EIA reported a 57 bcf increase of natural gas in storage to 3,063 Bcf. The injection was nearly on target for the five-year average injection of 56 Bcf, leaving the surplus to the five-year average unchanged at 1.5%. The injection, however, was below analyst expectations, which led to a bullish response in the market. Revised weather forecasts from the NWS showed above-average temperatures holding in the 6–10 day forecast and expanding in the 8–14 day forecast to cover most of the United States. Natural gas futures closed for the day at $3.545 per MMBtu, up 8.5 cents.

Futures curve

The forward curve for WTI crude is in backwardation, with April 2014 WTI futures being 6% lower than near-month (October) futures due to growing North American supply and concerns over slowing global economic growth. However, March 2014 natural gas futures are at a premium of 10.3% over September 2013 futures due to expectations of moderate supply growth and higher demand from commercial and residential sectors in 2013.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.85 15.61 1.54%
Gasoline Demand (MMBPD) 9.20 9.19 0.11%
Distillate Demand (MMBPD) 3.61 3.61 NC
Production (MMBPD) 7.52 7.57 -0.66%
Imports (MMBPD) 7.95 7.92 0.38%
Stocks (million barrels) 359.1 360.5 -0.39%
Rotary Rig Count 1,397 1,385 0.87%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,063 3,006 1.90%
Rotary Rig Count 388 386 0.52%
Horizontal Rig Count 1,077 1,065 1.13%
Consumption (Bcf)* 1,740 (May 13) 1,947 (Apr 13) -10.65%
Gross Withdrawals (Bcf)* 2,537 (May 13) 2,485 (Apr 13) 2.09%
Canadian Imports (Bcf)* 229.0 (May 13) 215.1 (Apr 13) 6.48%
LNG Imports (Bcf)* 5.6 (May 13) 5.2 (Apr 13) 8.80%

* The EIA does not provide weekly natural gas consumption, withdrawal, and import numbers. Thus, the latest available monthly numbers are reported above.
NC – No Change;
Data source: U.S. Energy Information Administration (EIA)

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