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Weekly Oil & Gas Market Highlights: March 7, 2013

Deloitte Center for Energy Solutions publication

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Please be advised that we will not be publishing the Oil & Gas Market Highlights next Friday March 15, 2013. We will resume with a two-week summary on March 22, 2013.

Key Oil & Gas price indicators

Front Month Futures (August) March 7, 2013 February 28, 2012 % Change
Oil – WTI
(USD per barrel)
$91.56 $92.05 -0.5%
Oil – Brent
(USD per barrel)
$111.15 $111.38 -0.2%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.58 $3.49 2.8%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude oil futures fell marginally due to concerns over economic recovery in the U.S., Europe, and China. However, geopolitical tensions in the Middle East and North Africa region maintained a floor under the crude prices.

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

  1. Crude futures fell in Asian trading on Friday as China’s manufacturing Purchasing Managers’ Index (PMI) fell to 50.1 in February from 50.4 in January. Although a reading above 50 indicates expansion in the sector, the number was weaker than what analysts had expected. In Europe, continued uncertainty over the region’s economic health and the future of government austerity programs following the inconclusive results of the Italian elections pushed the dollar higher versus the euro, which is bearish for crude prices. During New York trading, crude futures fell as uncertainty clouded the U.S. economic outlook due to government sequestration cuts—automatic budget cuts of $85 billion during FY2013, totaling $1.6 trillion over 10 years—that took effect on Friday. President Obama stated that the budget cuts would not cause a new economic crisis in the country, but that it may result in a round of government furloughs and layoffs. Also weighing on the market, the U.S. Department of Commerce reported that personal incomes fell 3.6% to a 20-year low in January as result of the tax increases that took effect on January 1. Economists had expected a more modest decline. Crude futures fell $1.37 during the day to settle at $90.68 per barrel.
  2. On Monday, futures fell during Asian trading as China’s non-manufacturing PMI fell from 56.2 in January to 54.5 in February, which raised concerns about recovery in the world’s second largest oil-importing country. In European trading, activity was muted ahead of a meeting of finance ministers in Brussels to discuss the uncertainty over the outcome of the Italian elections. Portugal will also be on the agenda as the country requests renegotiated terms for its bailout package as a result of a deeper-than-anticipated recession in the country. Futures began climbing later in the day as the Brent pipeline system from the North Sea was closed for the second time in seven weeks following an oil leak. The closure affected the flow of an estimated 90,000 bbl/d of crude. Futures closed for the day at $90.12 per barrel, down $0.56.
  3. Crude futures rose during Asian trading on Tuesday as traders believed that oil futures had been oversold in recent days. Futures have lost nearly 8% since the middle of February. Geopolitical tensions continued to maintain a floor under prices as fighting in Libya at the Mellitah oil and gas facility in the city of Zwara forced a reduction in crude deliveries from the Elephant and Wafa fields. As a result of the clashes, ENI has suspended gas deliveries through the Greenstream pipeline that links Libya and Italy. The dispute over Iran’s nuclear program is also keeping regional tensions high. Israeli Prime Minister Benjamin Netanyahu warned that Iran is getting closer to crossing a “red line,” which is expected to trigger an Israeli strike on Iran’s nuclear facilities. Crude futures continued their rise later in the day as it was announced that Venezuelan President Hugo Chavez died. According to the Energy Information Administration (EIA), Venezuela was the second-largest supplier of oil to the U.S. after Canada in December 2012, edging out Saudi Arabia and Mexico. Uncertainty over both the future of the country as well as smooth transfer of power helped drive up futures. Vice President Nicolas Maduro announced that new elections would be held in 30 days, but no date has yet been set. Crude futures rose $0.70 to close for the day at $90.82 per barrel.
  4. Crude futures extended their gains in Asia on Wednesday due to concerns over political uncertainty in Venezuela following the death of Chavez and supply concerns about Libya where recent clashes have reduced output by an estimated 300,000 bbl/d. Futures fell later in the day as traders sat on the sidelines ahead of the EIA weekly oil stocks report. Downside concerns were justified later when the agency reported that crude stocks rose by 3.8 MMbbl, well above analyst expectations. Crude stocks are currently 381.4 MMbbl, the highest level since June 2012. Refinery utilization fell 2.9% to 82.2% as refiners reduced crude processing by 500,000 barrels last week due to turnaround season. Futures fell $0.39 to close at $90.43 per barrel.
  5. On Thursday, crude futures rose as the European Central Bank (ECB) announced that it would make no change to its benchmark interest rate, which caused the dollar to fall 1.2% versus the euro. ECB President Mario Draghi announced that the European economy should stabilize later in the year.
    Futures climbed further later in the day as the Department of Labor announced that new claims for unemployment fell by 7,000 last week to 340,000, which exceeded analyst expectations. Crude futures rose $1.11 to close at $91.56 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures rose 2.7% this week on expectations of colder weather and higher-than-expected inventory withdrawals. However, traders remain concerned that the natural gas demand will ease from current levels as the heating season closes and spring approaches.

Closing price; December futures expired on November 28.
Note: Intra-day prices (every 6 hours)
Data source: Bloomberg

  1. Natural gas futures fell last Friday after a seesaw session driven by mixed weather forecasts for the coming weeks. The National Weather Service (NWS) forecasts showed a weakening of the cooling trends in the West and Florida, and above-average temperatures in the central part of the country and New England. The 8–14 day forecast showed the area of cooler weather increasing as it expanded outward from the west, but the forecast period is much less accurate than near-term forecasts. Baker Hughes reported the natural gas rig count fell by 8 rigs to 420. NYMEX natural gas futures closed down 3 cents for the day at $3.456 per MMBtu.
  2. On Monday, natural gas futures rose, driven by expectations that cold weather would prevail over much of the U.S. for the week. However, further weather-driven upside for prices may be difficult to sustain with temperatures beginning to moderate as spring approaches. Bulls remain hopeful that there may still be some above-average draws on gas in storage to boost prices. Natural gas futures ended up 7.3 cents (>2%) at $3.529 per MMBtu. Bulls noted optimistically that the front-month contract settled above $3.50 for the first time in six weeks.
  3. On Tuesday, natural gas futures were unchanged as expectations of higher demand driven by current cold temperatures were evenly matched by concerns over approaching spring weather. Analysts expected lower inventory levels this week in EIA’s weekly natural gas report. Futures closed unchanged at $3.529 per MMBtu.
  4. Natural gas futures ended lower on Wednesday driven by profit-taking following the six-week high posted on Tuesday. Expectations for a bullish storage draw this week and a snow storm in the Midwest and East Coast supported current prices, but some traders are eyeing current volumes of gas in storage as the withdrawal season comes to a close. Bears noted that futures failed to sustain prices above the $3.50 per MMBtu mark. Futures closed down 5.9 cents at $3.47 per MMBtu.
  5. On Thursday, natural gas futures again rallied above $3.50 per MMBtu as the EIA reported a bullish gas withdrawal of 146 Bcf last week. The draw was above both last year’s 92 Bcf withdrawal and the five-year average draw of 107 Bcf. Bulls noted that in addition to exceeding the historical average, it was the third week in a row that the draw was above analyst expectations. However, bears noted that while current gas in storage is 361 Bcf lower than last year’s historic storage levels, it is still 269 Bcf (15%) above the five-year average. Natural gas futures closed at $3.582 per MMBtu, up 11.2 cents.

Futures curve

November 2013 WTI futures are just 0.4% higher than current prices due to limited upside in demand and growing supply. However, the November 2013 natural gas futures are at a premium of 7.8% to near-month (April) 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) 14.03 14.51 -3.31%
Gasoline Demand (MMBPD) 8.36 8.59 -2.79%
Distillate Demand (MMBPD) 3.86 3.50 10.29%
Production (MMBPD) 7.09 7.01 1.14%
Imports (MMBPD) 7.31 7.96 -8.17%
Stocks (million barrels) 381.4 377.5 1.03%
Rotary Rig Count 1,333 1,329 0.30%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,083 2,229 -6.55%
Rotary Rig Count 420 428 -1.87%
Horizontal Rig Count 1,141 1,140 0.09%
Consumption (Bcf)* 2,472 (Dec 12) 2,154 (Nov 12) 14.76%
Gross Withdrawals (Bcf)* 2,559  (Dec 12) 2,496 (Nov 12) 2.52%
Canadian Imports (Bcf)* 233.94  (Dec 12) 219.26 (Nov 12) 6.66%
LNG Imports (Bcf)* 16.88  (Dec 12) 14.21 (Nov 12) 18.31%

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’s new paper, Oil & Gas Mergers and Acquisitions Report – Year-end 2012: Stable oil prices support a healthy deal market covers deals from the past 12 months by sector and reveals the insights of Deloitte merger & acquisition (M&A) specialists on what is driving activity and what this says about how the business is changing, as the oil and gas industry continued to demonstrate strong M&A activity in 2012.

Deloitte's new 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 new 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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May 21-22, 2013
Deloitte Energy Conference – Washington, DC
For more information or to obtain a synopsis of the 2011 Deloitte Energy Conference, please contact EnergyConference@deloitte.com

November 19, 2013
Deloitte Oil & Gas Conference – Houston, TX
For more information, please contact OilandGasConference@deloitte.com

About the Deloitte Center for Energy Solutions
The Deloitte Center for Energy Solutions provides a forum for innovation, thought leadership, groundbreaking research, and industry collaboration to help companies solve the most complex energy challenges.

Through the Center, Deloitte’s Energy & Resources Group leads the debate on critical topics on the minds of executives—from the impact of legislative and regulatory policy, to operational efficiency, to sustainable and profitable growth. We provide comprehensive solutions through a global network of specialists and thought leaders.

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