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Weekly Oil & Gas Market Highlights: April 18, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) April 18, 2013 April 11, 2012 % Change
Oil – WTI
(USD per barrel)
$87.73 $93.51 -6.2%
Oil – Brent
(USD per barrel)
$99.13 $104.27 -4.9%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$4.40 $4.14 6.3%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude futures fell more than 6% this week due to disappointing economic news from the U.S. and China, downward revisions in 2013 world Gross Domestic Product (GDP) and global oil demand estimates, and the banking crisis in Cyprus. Brent dropped below $100 per barrel, the lowest level since July 2012.

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

  1. Crude futures fell during Asian trading last Friday as investors grew concerned over recent downward revisions in world crude demand growth estimates from OPEC, the U.S. Energy Information Administration (EIA), and the International Energy Agency (IEA). During London trading, crude futures fell as officials in Cyprus revealed that the country would seek to increase the 10-billion-euro aid (~$13 billion) granted by Eurozone members. The news increased concerns that the banking crisis in Cyprus may not yet be fully resolved. The U.S. Department of Commerce announced that U.S. sales fell 0.4% in March, the largest drop since last June. Consumer confidence also fell to 72.3 in April from 78.6 in March, according to the Thomson Reuters/University of Michigan index. Crude futures dropped nearly 2.5% following the news. WTI crude futures for May delivery closed down $2.22 at $91.29 per barrel.
  2. On Monday, crude futures fell during Asian trading as China’s National Bureau of Statistics reported that the country’s first-quarter GDP rose 7.7% over last year, disappointing analyst expectations. Further contributing to the downward sentiment in the crude market, China’s oil consumption was down from 10.2 MMbbl/d in February to just 9.77 MMbbl/d in March, the lowest level in 5 months, but up 5.5% from last year. Futures slid under the $90 per barrel mark following the news. In Venezuela, OPEC’s third-largest oil producer, Nicolas Maduro was proclaimed the winner in the presidential elections against centrist reform candidate Henrique Capriles. Following the results, widespread allegations of fraud in the elections and calls for a recount surfaced. Maduro pledged to continue the policies of former President Hugo Chavez. The IEA stated that Maduro’s re-election would likely have negative repercussions on the country’s oil production capacity, which has been in decline since Chavez’s tenure as president. The prospect of continued decline in Venezuelan production was not enough to overcome the news out of China. WTI crude futures closed down $2.58 at $88.71 per barrel.
  3. On Tuesday, crude prices rose during Asian trading on speculation that futures had been oversold the previous day. Futures began to fall as the International Monetary Fund reduced its 2013 global GDP growth forecast to 3.3%, which is lower than analysts’ expectation and the fourth reduction in the estimate this year. Traders found upside news in the American Petroleum Institute’s weekly oil stocks report—less closely monitored than the EIA report—which showed that crude oil stockpiles fell by 6.7 MMbbl, the largest one-week fall in crude stocks that API has reported since the last week of 2012.
  4. On Wednesday, crude futures fell as investors weighed rumors of a downgrade of Germany’s credit rating. The news sent the dollar up 1.3% versus the euro, which is bearish for dollar-denominated crude sales. During New York trading, crude fell to a four-month low following a decline in the broader market. U.S. stocks led the decline as prices tumbled following disappointing reports of first-quarter corporate earnings. EIA’s weekly oil stocks data failed to provide support as the agency reported a 1.23 MMbbl draw on U.S. crude stockpiles. However, last week, crude stocks reached the highest level since July 1990, so the current inventory of 387.6 MMbbl is still near record highs. Adding to the bearish outlook, U.S. crude production grew to 7.2 MMbbl/d, the highest level since 1992, while crude imports fell 3.7% to 7.43 MMbbl/d. Fuel demand also declined as gasoline consumption fell for the second week in a row to 8.38 MMbbl/d and distillate demand declined nearly 6% to 3.63 MMbbl/d. The sell-off in both WTI and Brent futures sent Brent below the $100 per barrel mark. Iran’s Oil Minister Rostam Qasemi stated that he would speak with other OPEC members about holding an emergency meeting of the group should oil prices fall below the $100 per barrel mark. WTI crude futures fell $2.04 (2.3%) to $86.68 per barrel and Brent futures closed down $2.22 (2.2%) at $97.69 per barrel. WTI prices have fallen nearly 8.5% since April 10.
  5. On Thursday, crude futures rose during London trading as traders believed that contracts had been oversold in the Wednesday sell-off. Two delegates to OPEC stated that the organization had no plans for a special meeting following Wednesday’s drop in oil prices. The organization’s next meeting is scheduled for May 31. In Nigeria, the 150,000 bbl/d Nembe Creek Trunkline was shut down due to continued oil thefts along the pipeline, which have caused several leaks in the line. Saudi Arabia announced that its shallow-water Manifa oil field had started operations 3 months ahead of schedule. The field will produce 500,000 bpd by July of this year and climb to 900,000 bpd when fully operational in 2014. Crude futures rose as the Department of Labor announced that new unemployment benefits claims rose by 4,000 to 352,000, which was in line with analysts’ expectations. The weak economic indicator helped send the dollar lower, which is bullish for crude prices. WTI crude futures rose 1.2% and closed at $87.73 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures advanced to a 20-month high of $4.40 per MMBtu due to a lower-than-expected increase in natural gas injection and colder-than-normal weather forecasts. Natural gas prices have increased nearly $1 per MMBtu over the past two months, making traders cautious, especially considering the current high levels of open interest in the market.

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

  1. Last Friday, natural gas futures rallied driven by recent gas withdrawals three weeks into what is typically the injection season. Late-season withdrawals have been driven by recent cold temperatures across much of the country. The National Weather Services’ (NWS) 6–10 day forecast shows below-average temperatures covering most of the central part of the country, with above-average temperatures along the West Cost and Southeast. The 8–14 day forecast shows the area of below-average temperatures expanding to cover the East Coast as well as central U.S. Baker Hughes released its weekly rig count data, which showed the gas-directed rig count rose by two rigs to 377, rising from a 14-year low posted last week. Henry Hub natural gas futures closed up 8.2 cents (2%) on Friday at $4.222 per MMBtu. The front-month contract has risen >5% during the past three trading sessions.
  2. On Monday, natural gas futures fell as traders booked profits following recent gains. Revised weather forecasts from the NWS showed temperatures across the country split between a below-average trend in the eastern half of the country and a warmer-than-average trend in the western half. Some traders are concerned that at current prices, natural gas is less competitive than coal for power generation. Gas futures closed down 8.5 cents at $4.137 per MMBtu.
  3. Natural gas futures seesawed on Tuesday beginning with futures falling on speculation that this week’s natural gas report from the EIA would show the first injection of the season. Futures rebounded later in the day to close higher as revised weather forecasts from the NWS showed that below-average temperatures would persist across much of the country giving rise to speculation that any injection might be below-average average. Natural gas futures closed up 2.3 cents at $4.160 per MMBtu.
  4. On Wednesday, natural gas futures rose supported by forecasts for below-average temperatures across much of the country over the next two weeks and expectations of a below-average injection in EIA’s weekly gas data. Natural gas futures have been on an upswing over the past two months, driven by unseasonably cold weather that boosted prices 35% over the period. However, some traders are concerned about the current high levels of open interest in the market, which could swiftly exit the market to book profits once weather forecasts turn bearish. Natural gas futures closed up 5.4 cents at $4.214 per MMBtu.
  5. On Thursday, natural gas futures seesawed ahead of the release of EIA’s weekly natural gas storage report before rising sharply as the weekly data showed a net gas injection of 31 Bcf rising to 1,704 Bcf, ~32% lower than the same period last year. The increase was less than what analysts had expected. Markets also responded positively to news that working natural gas in storage was 74 Bcf below the five-year average. Weather forecasts from the NWS continued to be supportive, showing below-average temperatures across most of the country in both the 6–10 and 8–14 day forecasts. Continued late-season cold weather and above-average nuclear power plant outages have helped support natural gas futures despite the current price advantage of coal over gas-powered generation. Natural gas futures closed up 4.4% at $4.401 per MMBtu.

Futures curve

December 2013 WTI futures are 0.3% lower than current prices due to growing North American supply and weak demand growth in the U.S. However, December 2013 natural gas futures are at a premium of 7.8% to near-month (May) futures due to moderating supply growth, supporting weather forecasts, 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) 15.07 15.11 -0.26%
Gasoline Demand (MMBPD) 8.38 8.48 -1.18%
Distillate Demand (MMBPD) 3.63 3.85 -5.71%
Production (MMBPD) 7.20 7.18 0.28%
Imports (MMBPD) 7.43 7.72 -3.76%
Stocks (million barrels) 387.6 388.9 -0.33%
Rotary Rig Count 1,387 1,357 2.21%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,704 1,673 1.85%
Rotary Rig Count 377 375 0.53%
Horizontal Rig Count 1,102 1,084 1.66%
Consumption (Bcf)* 2,863 (Jan 13) 2,472 (Dec 12) 15.82%
Gross Withdrawals (Bcf)* 2,542 (Jan 13) 2,562 (Dec 12) -0.78%
Canadian Imports (Bcf)* 262.3 (Jan 13) 234 (Dec 12) 12.09%
LNG Imports (Bcf)* 13.5 (Jan 13) 16.8 (Dec 12) -19.64%

* 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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