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Weekly Oil & Gas Market Highlights: April 03, 2014

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures April 03,
2014
March 27,
2014
% Change
Oil – WTI
(USD per barrel)
$100.29 $101.28 -1.0%
Oil – Western Canadian Select*
(USD per barrel)
$81.14 $82.58 -1.7%
Oil – Brent
(USD per barrel)
$106.15 $107.83 -1.6%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.47 $4.58 -2.5%

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 fell 1% this week due to weaker-than-expected economic data from the U.S. and subsiding tensions in the Crimea region. However, persisting political instability in Libya continues to support the geopolitical risk premium in the crude prices.

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

  1. Last Friday, crude futures rose during Asian trading as investors grew concerned over possible energy-related sanctions affecting Russia’s oil supplies. The Eurasian country, which supplies over 10.5 MMbbl/d, is the largest oil producer outside OPEC. President Obama called on Russia to pull back troops from Crimea and begin negotiations with the Ukrainian government. Some analysts speculate any energy-sector sanctions would likely affect investments in Russia’s energy industry rather than restrict exports, like the sanctions imposed on Iran. Later in the day, crude futures were boosted by positive U.S. economic data. Personal consumption in the U.S. rose 0.3% according to the Department of Commerce. The gain was above analyst expectations, boosting confidence in improved crude demand. WTI crude futures for May delivery rose $0.39 to close at $101.67 per barrel.
  2. On Monday, crude futures fell during early trading on news that U.S. Secretary of State John Kerry and Russian Foreign Minister Lavrov met in Paris over the weekend to negotiate on the Crimean crisis. Kerry said Russia’s forces were creating a climate of fear and intimidation while Lavrov called on Ukraine to increase local autonomy in the country. The U.S. and the EU are exploring further sanctions against Russia if it continues to push deeper into Ukraine. However, futures changed course during London trading as the Libyan National Oil Corporation announced the country’s output was just 170,000 bbl/d, with operations at the Elephant field remaining at a standstill due to labor disputes. News of an armed skiff boat firing a machine gun twice at an oil tanker passing through the Strait of Hormuz raised concerns about security in the area. No casualties were reported and the tanker made its way through the Strait. WTI crude futures settled at $101.58 per barrel, down $0.09.
  3. On Tuesday, crude futures traded largely sideways as investors eyed two different measures of China’s Purchasing Manager’s Index (PMI). China’s official PMI, which is released by the Chinese government and dominated by large energy-intensive companies, rose slightly from 50.2 in February to 50.3 in March. However, HSBC’s measure of China’s PMI, which better measures conditions for small businesses, fell to 48 in March from 48.5 in February. With the needles moving in opposite directions, the market had no clear signal to follow. Futures fell during London trading as Russia signaled it was moving some of its troops from the border with Ukraine. A move to de-escalate the crisis in the region allowed some of the geopolitical risk premium to subside. During New York trading, futures dropped as the Institute for Supply Management’s U.S. manufacturing index increased from 53.2 in February to 53.7 in March. However, the rise was below expectations as analysts had expected the figure to be above 54. WTI crude futures for May delivery fell $1.84 to close at $99.74 per barrel.
  4. On Wednesday, crude futures fell as reports emerged a deal was imminent between the Libyan government and rebel forces to end a blockade of oil terminals in the eastern part of the country. Oil exports from the eastern part of the country could return an additional 600,000 bbl/d to the global market. Futures fell later in the day even as weekly data from the Energy Information Administration (EIA) showed crude stocks falling 2.38 MMbbl, the first decline in 11 weeks. Analysts largely shrugged off the decline as an aberration due to the temporary closure of the Houston Ship Channel last week. U.S. crude imports fell to just 6.83 MMbbl last week, the lowest level of imports since January 2000, partly as a result of the shipping channel closure. Supplies at Cushing fell by 1.22 MMbbl to a four-year low of 27.3 MMbbl as newly opened pipelines have helped clear the bottleneck at the key pricing hub. WTI crude futures fell $0.12 to close at $99.62 per barrel.
  5. On Thursday, crude futures rose, largely driven by events in Libya. The spokesperson for a rebel group in eastern Libya stated there was no agreement to return control of the Zueitina oil export terminal to the government over the next few days. The news contradicted earlier reports from the Libyan government stating the rebels were prepared to open the ports in the next two days. Given the continued back-and-forth negotiations between both sides, the market is skeptical a deal can be reached in the near term. WTI crude futures rose $0.67 to close at $100.29 per barrel.

Natural gas prices

Henry Hub natural gas futures fell 2.5% this week on expectations of moderating gas demand due to the onset of spring in the United States. However, decade-low inventory levels and speculation about the industry’s ability to rebuild the inventories for the next winter continued to maintain a floor under natural gas prices.

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

  1. Last Friday, natural gas futures fell as investors looked to the onset of spring temperatures to moderate gas demand. The market is expecting the injection season to begin in the next few weeks. Analysts were optimistic rising U.S. natural gas production would rebuild storage over the summer months to a level adequate for winter demand. Henry Hub natural gas futures for May delivery closed down 5.3 cents at $4.485 per MMBtu.
  2. On Monday, natural gas futures fell as investors expressed confidence the record natural gas production forecast by the EIA for this year will be sufficient to rebuild inventory levels. However, some noted nearly 3 trillion cubic feet of gas will be needed to feed winter demand, a record target for the industry. Some analysts expect natural gas prices will need to remain at $4.50 or higher in order to boost output and rebuild stockpiles. Henry Hub natural gas futures fell 11.4 cents to close at $4.371 per MMBtu.
  3. On Tuesday, natural gas futures extended Monday’s losses as private weather forecasters predicted above-average to average temperatures across the eastern half of the country in the 6–10 day period. Warm conditions were expected to cut into natural gas demand. Henry Hub futures fell 9.5 cents to $4.276 per MMBtu.
  4. On Wednesday, natural gas futures rose as investors speculated Thursday’s natural gas data from the EIA would show another draw on gas inventories. Natural gas in storage, currently at 896 Bcf, is at a record 51% deficit to the five-year average and a 50% deficit to last year’s level at this time of year. Another withdrawal this week was expected to further increase the inventory deficit. Henry Hub natural gas futures rose 8.8 cents to close at $4.364 per MMBtu.
  5. On Thursday, natural gas futures rose as working natural gas in storage fell 74 Bcf to 822 Bcf due to continued cold conditions during the reporting period. Natural gas in storage has been at the lowest level since April 2003, which was before U.S. production from shale. Current inventory levels are nearly 52% below last year’s level of over 1,700 Bcf and nearly 55% below the five-year average level of 1,800 Bcf. Henry Hub natural gas futures climbed 10.6 cents to close at $4.470 per MMBtu.

Futures curve

The forward curve for WTI crude continues to be in backwardation, with December 2014 WTI futures 6% lower than near-month (May) futures due to rising North American crude supplies. The EIA expects U.S. crude production to average 8.39 MMbbl/d in 2014 — the highest since 1987 — boosted by increased drilling in tight oil plays. Natural gas futures are out of backwardation following the end of the winter heating season. Near-term (May) prices are 5% lower than the December 2014 futures.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.32 15.09 1.52%
Gasoline Demand (MMBPD) 8.72 9.00 -3.11%
Distillate Demand (MMBPD) 3.80 3.48 9.20%
Production (MMBPD) 8.19 8.19 NC
Imports (MMBPD) 6.83 7.62 -10.37%
Stocks (million barrels) 380.1 382.5 -0.63%
Rotary Rig Count 1,487 1,473 0.95%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 822 896 -8.26%
Rotary Rig Count 318 326 -2.45%
Horizontal Rig Count 1,211 1,206 0.41%
Consumption (Bcf)* 2,912 (Dec 13) 2,305 (Nov 13) 26.32%
Gross Withdrawals (Bcf)* 2,627 (Dec 13) 2,559 (Nov 13) 2.64%
Canadian Imports (Bcf)* 270.1 (Dec 13) 215.9 (Nov 13) 25.11%
LNG Imports (Bcf)* 2.73 (Dec 13) 2.69 (Nov 13) 1.34%

Notes:
NC: No Change
* 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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