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Weekly Oil & Gas Market Highlights: October 3, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures October 3,
2013
September 26, 2013 % Change
Oil – WTI
(USD per barrel)
$103.31 $103.03 0.3%
Oil – Western Canadian Select*
(USD per barrel)
$70.60 $71.03 -0.6%
Oil – Brent
(USD per barrel)
$109.00 $109.21 -0.2%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.50 $3.57 -1.9%

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 fell early this week due to easing tensions over Syria and Iran and the negative impact of the U.S. shutdown on energy demand. Futures settled marginally higher on news the Keystone XL pipeline is nearing completion and energy companies in the U.S. Gulf of Mexico are shutting production due to a storm threat.

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

  1. Last Friday, crude futures fell as the United Nations Security Council agreed to a resolution to eliminate Syria’s nuclear weapons. Prices eased as traders noted the resolution did not include the threat of military force against Syria. Easing tensions between Syria and the U.S., discussions between Iran and Western diplomats over Iran’s nuclear ambitions and high-level talks - for the first time in over three decades - between the U.S. and Iran led market traders to consider the possibility of over 1 MMbbl/d of Iran oil returning to the market if oil sanctions against the country are lifted in the future. Futures also fell as the U.S. Senate (the “Senate”) voted to pass the Patient Protection and Affordable Care Act, otherwise known as “Obamacare,” which the U.S. House of Representatives (the “House”) was committed to reject. The potential for a partial government shutdown, if the bill was not finalized before October 1, increased traders concerns about the potential negative economic implications, which could adversely affect crude demand. WTI crude futures for November delivery closed down $0.16 at $102.87 per barrel.
  2. On Monday, crude futures fell as the impasse between the House and Senate continued and Moody’s estimated a 3–4 week shutdown of the government could result in a 1.4% decline in fourth-quarter GDP. Many traders sold off commodities positions and purchased Treasuries. WTI crude futures closed down $0.54 at $102.33 per barrel.
  3. On Tuesday, crude futures fell during Asian trading as the House and Senate failed to reach an agreement and the White House issued a statement to each government agency advising them to begin a partial shutdown of operations on Tuesday. Crude futures also fell as China’s Purchasing Manager’s Index rose marginally from 51.0 in August to 51.1 in September, which was below analyst expectations. WTI crude closed down $0.29 cents at $102.04 per barrel.
  4. On Wednesday, crude futures fell as the U.S. federal government remained partially shut down for a second day. Futures fell further as the Energy Information Administration (EIA) released its weekly oil stocks report showing crude inventories rose by 5.5 MMbbl to 363.7 MMbbl last week. In addition, crude inventories at Cushing, Oklahoma, the key pricing hub for WTI crude, fell for the 13th straight week as stocks declined by 59,000 barrels to 32.8 MMbbl. Futures received a boost later in the day on news the southern portion of the 700,000 bbl/d Keystone XL pipeline was nearly complete which will help alleviate the supply bottleneck at Cushing. WTI crude futures closed up $2.06 at $104.10 per barrel.
  5. On Thursday, crude futures fell as the U.S. government shutdown continued for a third day. The decline in crude prices was also supported by data from the Institute of Supply Management showing a slowdown in the U.S. service sector as the U.S. non-manufacturing index fell from 58.6 in August to 54.4 in September, the largest decrease since November 2008. However, crude futures began rising as the National Hurricane Center (NHC) forecast Tropical Storm Karen was expected to strengthen to near-hurricane levels on Friday and make landfall between Alabama and Florida on Sunday. The Gulf of Mexico supplies 23% of U.S. domestic crude production and >45% of U.S. refining capacity. Crude futures closed down $0.79 at $103.31 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures fell nearly 2% this week due to rising natural gas production and a larger-than-expected build in inventories. Market traders remained bearish on natural gas prices, despite forecasts of above-average temperatures and a storm threat in the U.S. Gulf of Mexico.

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

  1. On Friday, natural gas futures rose as traders closed short positions ahead of the weekend. Revised weather forecasts from the National Weather Service (NWS) showed above-average temperatures across the eastern part of the country. However, traders did not expect the temperatures to translate into much of an increase in air-conditioning demand given current moderate conditions. Baker Hughes reported that the gas-directed rig count fell by 10 units to 376. Henry Hub natural gas futures closed up 2.2 cents at $3.589 per MMBtu.
  2. On Monday, natural gas futures fell as the EIA released its monthly natural gas figures for July, showing natural gas production rising by 1.8 Bcf or 2.5% year-on-year, from 73.78 Bcf in July 2012 to 74.52 Bcf in 2013. The figure was a new record for monthly production. Revised weather forecasts showing average-to-above-average temperatures across most of the country in the 8–14 day forecast from the NWS were not enough to keep prices up during the day. Henry Hub natural gas futures closed down 2.9 cents at $3.560 per MMBtu.
  3. On Tuesday, natural gas futures rose as the NHC announced a low-pressure system in the Caribbean Sea had a 50% chance of becoming a tropical cyclone over the next week. The storm is expected to pass over the southern Gulf of Mexico later during the week. The Gulf of Mexico currently accounts for 5.6% of U.S. natural gas production.
  4. On Wednesday, natural gas futures fell as traders noted rising production and gas inventories. Forecasts of average-to-above-average temperatures by the NWS did little to boost prices as traders did not expect to see much effect on air-conditioning demand. The NHC, meanwhile, increased the probability of the low-pressure system in the Caribbean Sea developing into a tropical cyclone to 70% over the next five days. Henry Hub natural gas futures closed down 6.7 cents at $3.542 per MMBtu.
  5. On Thursday, natural gas futures fell as the EIA announced that working gas in storage rose by 101 Bcf — above analyst expectations — to 3,487 Bcf. Current gas inventories are nearly 50 Bcf above the five-year average. However, bulls eyed the newly formed Tropical Storm Karen in the Gulf of Mexico for any possible impact on natural gas production in the region. Henry Hub natural gas futures closed down 4.30 cents at $3.499 per MMBtu.

Futures curve

The forward curve for WTI crude is in backwardation, with June 2014 WTI futures 5.6% lower than near-month (November) futures, primarily due to growing North American supply and concerns about a slowdown in global economic growth. However, June 2014 natural gas futures are at a premium of 7.4% over November 2013 futures due to expectations of moderate supply growth and higher demand from commercial and residential sectors in 2014.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.44 15.59 -0.96%
Gasoline Demand (MMBPD) 8.53 8.85 -3.62%
Distillate Demand (MMBPD) 3.83 3.58 6.98%
Production (MMBPD) 7.78 7.78 NC
Imports (MMBPD) 8.63 7.93 8.83%
Stocks (million barrels) 363.7 358.3 1.51%
Rotary Rig Count 1,362 1,369 -0.51%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,487 3,386 2.98%
Rotary Rig Count 376 386 -2.59%
Horizontal Rig Count 1,085 1,091 -0.55%
Consumption (Bcf)* 1,910 (Jul 13) 1,727 (Jun 13) 10.60%
Gross Withdrawals (Bcf)* 2,552 (Jul 13) 2,453 (Jun 13) 4.03%
Canadian Imports (Bcf)* 225.9 (Jul 13) 228.9 (Jun 13) -1.31%
LNG Imports (Bcf)* 8.1 (Jul 13) 8.1 (Jun 13) NC

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)

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