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Weekly Oil & Gas Market Highlights: June 20, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures June 20, 2013 June 13, 2013 % Change
Oil – WTI
(USD per barrel)
$95.40 $96.69 -1.3%
Oil – Western Canadian Select*
(USD per barrel)
$81.87 $82.83 -1.2%
Oil – Brent
(USD per barrel)
$102.15 $104.25 -2.0%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.88 $3.81 1.7%

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 sharply on Thursday erasing gains made earlier during the week. Prices fell due to concerns of a possible slowdown in the U.S. bond buying program and weak Chinese economic data. Prices rose earlier in the week on positive economic news from the U.S. and heightened political tensions in Syria.

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

  1. Last Friday, crude futures rose as President Barack Obama announced the U.S. would provide small weapons and ammunition to arm Syrian rebels against the Assad regime. The move came in response to a U.S. intelligence report confirming President Bashar Assad’s forces used chemical weapons against the rebels, a move President Obama called a “red line” that would trigger greater U.S. involvement in the conflict. Traders were watchful of Iranian elections for a new president to replace Mahmoud Ahmadinejad on Friday. Iran has been under Western-backed oil sanctions for more than a year, which is estimated to have cost the country $3-$5 billion per month. Iran’s oil production is down to 2.5 MMbbl/d from 3.6 MMbbl/d in December 2011, according to Bloomberg estimates. Exports have fallen from nearly 2.5 MMbbl/d at the beginning of 2012 to just under 1 MMbbl/d currently. Crude futures also received support as the Department of Labor released data showing new unemployment claims fell by 12,000 last week to 334,000. The Department of Commerce also published data showing U.S. retail sales rose 0.6% last month, higher than April’s 0.1% increase. WTI futures closed for the day at $97.85 per barrel, up $1.16.
  2. On Monday, crude futures rose in early trading as investors were worried increased U.S. involvement in Syria could escalate regional tensions. Although Syria only produces a little over 150,000 bbl/d, traders were concerned the unrest in Syria could spread to other parts of the Middle East and possibly disrupt supplies. However, futures eased as Iranians elected moderate cleric Hassan Rohani as their president with 51% of the votes. Over the weekend, President-elect Rohani gave a speech vowing to improve ties with the rest of the world. The foreign policy office of the European Union expressed sentiments that a more moderate tone from Iran could lead to a quick diplomatic solution to the impasse. Crude futures fell further in the day on speculation the Federal Reserve may scale back its $85 billion per month bond purchase program during a two-day meeting scheduled during the week if the U.S. economy shows signs of improving. Crude futures for June delivery closed down $0.08 at $97.77 per barrel on the NYMEX.
  3. On Tuesday, crude prices fell during Asian trading as Iranian President-elect Rohani held a news conference in which he stated one of his goals was to ease tensions with the U.S. in order to reduce the sanctions that have crippled the nation’s economy. Futures rose later in the day as Assad’s forces launched an offensive against Syrian rebels backed by Hezbollah forces from Lebanon as well as Iranian and Russian military aid. Russian President Vladimir Putin agreed to sign a G8 statement calling for a transitional government to be established in Syria. However, the statement did not set a deadline for forming a new governing body. In the U.S., applications to build single-family homes rose 1.3% last month while inflation rose just 0.1%, indicating that the Federal Reserve may have more leeway to address U.S. unemployment as it reconsiders current economic stimulus policies. Futures closed at $98.44 per barrel, up $0.67.
  4. On Wednesday, crude futures fell as the U.S Energy Information Administration (EIA) released its weekly oil stocks report showing a bearish 313,000 barrel increase in crude stocks to 394.1 MMbbl. Crude futures fell along with the broader market later in the day as Federal Reserve Chairman Ben Bernanke said the Federal Reserve would begin to decrease its bond purchase program later this year if economic indicators meet its expectations. News of the possible termination of the bond buying program was bearish for crude, which is traded in dollars, as the dollar rose versus a basket of currencies. The S&P 500 index also dropped more than one percent following the news. Crude futures fell $0.20 to $98.24 on the NYMEX.
  5. On Thursday, crude futures continued falling along with U.S. and global equities after Bernanke alluded to future moderation of the U.S. stimulus program. More bearish news followed as HSBC and Markit Economics released preliminary data for China’s June Purchasing Manager’s Index, which showed the manufacturing activity slowing to 48.3 from 49.2 in May. Futures continued the fall during New York trading as the Department of Labor reported an 18,000 increase in new unemployment claims to 354,000 for the week ended June 15, which also added downward pressure on crude prices. The S&P 500 index dropped 2.5% to close at 1,588.19 points. WTI crude futures for July month delivery fell $2.84 per barrel, the biggest drop in seven months, and expired at $95.40 per barrel. The August contract, which moved into the front-month position, fell $3.24 to close at $95.14 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures rose nearly 2% this week boosted by expectations of warm weather across most of the country. A bearish inventory build reported by EIA exerted some downward pressure on futures.

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

  1. Last Friday, natural gas futures fell as mild late-spring temperatures softened cooling demand across much of the country. Traders had been hopeful an early summer heat wave would help spur natural gas demand, but the outlook from the National Weather Service (NWS) showed no significant warming trend in the 8–14 day forecast. Baker Hughes released its weekly rig data on Friday, which showed the natural gas rig count fell by one rig to 353. The figure is just above the 18-year low of 350 rigs reached in April. Natural gas futures for July delivery closed at $3.733 per MMBtu, down 8.1 cents.
  2. On Monday, natural gas futures rose nearly 4% as revised forecasts from the NWS showed above-average temperatures blanketing the Northeast and Midwest, which should boost cooling demand. A tropical depression, the second of the season, is moving through the Caribbean Sea, but it is not expected to affect natural gas production as it moves in to the Gulf of Mexico. Nuclear power plant outages are currently down from year-ago levels, but above the five-year average. Henry Hub natural gas futures closed up 14.2 cents at $3.875 per MMBtu.
  3. Natural gas futures rose for a second day during Tuesday trading as NWS’s 6–10 day forecast showed above-average temperatures across most of the country, which is bullish for natural gas power demand. Prices rose nearly 5% over the past two sessions. Above-average nuclear plant outages also supported the natural gas prices. Nuclear plant outages totaled 8,200 megawatts down from 9,100 MW out a year ago, but up from a five-year average outage rate of 6,600 MW. Natural gas futures closed up 3 cents at $3.905 per MMBtu.
  4. On Wednesday, natural gas futures rose as above-average temperatures continued in the East and Central U.S. as well as part of the West Coast. The 8–14 day forecast from the NWS showed the area of warm temperatures expanding to cover a larger portion of the country, which is bullish for cooling demand. Gas prices have fallen from highs above $4.50/MMBtu, driven by a mild start to the summer. However, futures were up over 6% since Monday. Natural gas futures closed up 5.8 cents at $3.963/MMBtu.
  5. Natural gas futures ended the three-day surge on Thursday as the EIA reported a net injection of 91 Bcf in gas storage. Although the injection was close to analyst expectations, it compared bearishly with last year’s 63 Bcf injection and the five-year average injection of 80 Bcf. Total working gas in storage is 2,438 Bcf. Natural gas futures closed down 8.6 cents at $3.877 per MMBtu.

Futures curve

March 2014 WTI futures are 3% lower than current prices due to growing North American supply and weak demand growth in major economies globally. However, March 2014 natural gas futures are at a premium of 7.5% to near-month (July) 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) 15.53 15.24 1.90%
Gasoline Demand (MMBPD) 8.84 8.65 2.20%
Distillate Demand (MMBPD) 4.01 4.08 -1.72%
Production (MMBPD) 7.13 7.22 -1.25%
Imports (MMBPD) 8.44 7.85 7.52%
Stocks (million barrels) 394.1 393.8 0.08%
Rotary Rig Count 1,413 1,406 0.50%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,438 2,347 3.88%
Rotary Rig Count 343 354 -3.11%
Horizontal Rig Count 1,086 1,088 -0.18%
Consumption (Bcf)* 2,508 (Mar 13) 2,553 (Feb 13) -1.75%
Gross Withdrawals (Bcf)* 2,549 (Mar 13) 2,318 (Feb 13) 9.98%
Canadian Imports (Bcf)* 237.8 (Mar 13) 223.5 (Feb 13) 6.37%
LNG Imports (Bcf)* 8.3 (Mar 13) 11.4 (Feb 13) -27.12%

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

Deloitte Global Energy & Resources practice’s new report, 2013 Oil & Gas Reality Check explores the industry fundamentals of each trend – the supply, demand, macroeconomic, regulatory, cost, price, and competitive behavior factors. The paper provides insights and describes what may unfold over the short and the long term.

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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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