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Weekly Oil & Gas Market Highlights: May 08, 2014

Deloitte Center for Energy Solutions publication

Key Oil & Gas price indicators

Front Month Futures May 08,
2014
May 01,
2014
% Change
Oil – WTI
(USD per barrel)
$100.26 $99.42 0.8%
Oil – Western Canadian Select*
(USD per barrel)
$80.26 $82.57 -2.8%
Oil – Brent
(USD per barrel)
$108.04 $107.76 0.3%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.57 $4.72 -3.1%

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 futures rose nearly 1% driven by mounting tensions in Ukraine. The Ukrainian government launched an offensive against pro-Russian separatists, resulting in over 70 deaths during the week. Prices were also supported by a surprise drop in U.S. crude inventories for the week ending May 2.

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

  1. Last Friday, crude futures rose as Ukraine launched a large-scale offensive against pro-Russian separatists in the region. Meanwhile, German Chancellor Angela Merkel visited the White House to discuss further sanctions. Her government is under pressure from German industries to avoid additional sanctions against Russia. Crude futures also received support later in the day as the U.S. Department of Labor reported the country added 288,000 jobs in April, which were 73,000 more than expected. A growing economy, as reflected in the job numbers, is bullish for crude demand as more workers are expected to increase demand. WTI crude futures closed up $0.34 at $99.76 per barrel.
  2. On Monday, crude futures fell as HSBC released its purchasing manager's index (PMI) for China. The data showed the PMI remained nearly flat, rising to just 48.1 in April from 48.0 in March. The weak demand indicator from the world's second-largest oil-consuming nation hurt the crude prices later in the day. Over the weekend, the conflict in Ukraine escalated as government forces entered six eastern cities to try to restore order. On Monday, during early trading, crude prices strengthened as fighting erupted between Ukrainian forces and 800 pro-Russian separatists. The rebels had stormed a police station in Odessa to free their men who were arrested a few days earlier. The fighting resulted in over 40 deaths. Despite these developments, energy analysts continue to view energy-related sanctions against Russia as a remote possibility. WTI crude for June delivery fell $0.28 to close at $99.48 per barrel.
  3. On Tuesday, crude futures rose as Markit's composite PMI for the Eurozone countries rose to 54 in April from 53.1 in March. The news strengthened the euro versus the dollar, which is bullish for crude. The Eurozone is also home to several top oil-consuming nations. Later in the day, crude fell as the OECD announced it is marginally lowering its world GDP growth estimate for this year to 2.2% from the 2.3% reported last November. During New York trading, analyst expectations this week's oil data from the Energy Information Administration (EIA) would show a bearish rise in crude futures weighed on the market. Current crude inventories last reported by the EIA stood at 399.4 MMbbl, the highest level since 1931. However, the bearish trend was offset by a note from Morgan Stanley which estimated inventories at Cushing would move close to 20 MMbbl, the minimum operating inventory level, by the end of May. Stockpiles at the WTI pricing hub had tumbled nearly 40% since January to 25.4 MMbbl for the week ended April 25. WTI crude futures closed up $0.02 cents at $99.50 per barrel.
  4. On Wednesday, crude futures rose as the main airport in eastern Ukraine was closed following heavy fighting around the facility, which left 30 separatists dead. Unrest in the region has spread to the city of Odessa, Ukraine's third-largest city, where a building fire killed several people. Crude futures continued to rise during New York trading as the EIA reported U.S. crude inventories fell by 1.8 MMbbl to 397.6 MMbbl last week. Analysts had been expecting an increase in U.S. crude stocks. Refinery utilizations fell 0.8% to 90.2%. However, utilizations are at their highest level since 2006 for this time of year, driven largely by strong export demand. Crude stockpiles at Cushing fell 1.4 MMbbl to 24 MMbbl, the lowest level since 2008. Analysts believe supplies at Cushing are approaching the minimum levels needed for operations at the pricing hub. Gulf Coast supplies, which have been rising since the opening of the southern leg of the Keystone pipeline, fell by 1.9 MMbbl last week. WTI crude futures for June delivery closed up $1.27 at $100.77 per barrel.
  5. On Thursday, crude futures rose initially as Russian President Vladimir Putin said the country is conducting military exercises to test the combat readiness of its army. Earlier, Putin had pledged to remove his troops from Ukraine's border, but NATO said so far there is no sign of withdrawal from the border region. Crude futures fell later in the day as European Central Bank President Mario Draghi announced the bank maintained Eurozone interest rates at a record low of 0.25% during its meeting in Brussels. Draghi, however, raised the possibility that more stimulative measures could be enacted in order to increase the pace of recovery in Europe. News of a possible stimulus sent the euro falling versus the dollar, which is bearish for dollar-denominated crude. WTI crude futures closed for the day at $100.26 per barrel, down $0.51.

Natural gas prices

Henry Hub natural gas futures tumbled over 3% this week largely due to a higher-than-average natural gas injection in inventories this week. Earlier in the week, prices received some support from weather forecasts showing below-average temperatures across much of the United States.

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

  1. Last Friday, natural gas futures fell as investors gained confidence that producers will be able to refill natural gas inventories, currently at an 11-year low of 1,965 Bcf, before the beginning of this year's heating season. Optimism was driven by the previous day's announcement from the EIA showing an 82 Bcf injection in gas storage. However, analysts estimate about 2–2.5 Tcf of natural gas needs to be injected in order to reach adequate levels to satisfy the heating demand this winter. Henry Hub natural gas futures closed down 4.5 cents at $4.674 per MMBtu.
  2. Natural gas futures rose on Monday as revised weather forecasts from the National Weather Service called for below-average temperatures across most of the country except the southeast and the West Coast. Current mild seasonal temperatures and forecasts of below-average temperatures across much of the country are expected to help maintain heating demand in some portions of the country, which is bullish for natural gas. Some investors are concerned lingering cool temperatures could contribute to a return to the trend of below-average injections, which raises concerns about refilling the inventory levels. Henry Hub natural gas futures closed up 1.4 cents at $4.688 per MMBtu.
  3. On Tuesday, natural gas futures extended Monday's gains as weather forecasts continued to support expectations of increased demand for both heating and cooling in different parts of the country. In EIA's natural gas report released last week, the data showed natural gas demand up 0.4% week on week. Lingering heating demand in portions of the country and a stronger-than-expected demand for cooling in others are expected to cut into this week's natural gas injection. Henry Hub natural gas futures closed up 11.1 cents at $4.799 per MMBtu.
  4. On Wednesday, natural gas futures fell on profit-taking following two days of increases driven by expectations of above-average demand. Some investors believe contracts have been overbid, as analysts expect this week's natural gas inventory figures may come in near the closely watched five-year average level. Henry Hub natural gas futures closed down 5.9 cents at $4.740 per MMBtu.
  5. On Thursday, natural gas futures plunged as the EIA released its weekly natural gas data, which showed U.S. natural gas inventories rising 74 Bcf last week to 1,055 Bcf. The injection compared bullishly with the five-year average injection of 72 Bcf, which the market was watching closely. However, the injection was bearish versus last year's injection of 81 Bcf during the same reporting period. Henry Hub natural gas futures closed down 16.80 cents at $4.572 per MMbtu.

Futures curve

The forward curve for WTI crude continues to be in backwardation, with December 2014 WTI futures nearly 5.2% lower than near-month (June) futures due to rising North American crude production and stockpiles. The EIA expects U.S. crude production to average 8.37 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 (June) prices are 3.2% 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) 15.90 15.94 -0.25%
Gasoline Demand (MMBPD) 8.72 8.69 0.35%
Distillate Demand (MMBPD) 4.33 3.91 10.74%
Production (MMBPD) 8.35 8.35 NC
Imports (MMBPD) 6.89 7.48 -7.89%
Stocks (million barrels) 397.6 399.4 -0.45%
Rotary Rig Count 1,527 1,534 -0.46%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,055 981 7.54%
Rotary Rig Count 323 323 NC
Horizontal Rig Count 1,247 1,245 0.16%
Consumption (Bcf)* 2,757 (Feb 14) 3,216 (Jan 14) -14.27%
Gross Withdrawals (Bcf)* 2,381 (Feb 14) 2,641 (Jan 14) -9.84%
Canadian Imports (Bcf)* 242.9 (Feb 14) 286.6 (Jan 14) -15.24%
LNG Imports (Bcf)* 3.8 (Feb 14) 8.5 (Jan 14) -55.29%

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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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.

With locations in Houston and Washington, D.C., the Deloitte Center for Energy Solutions offers interaction through seminars, roundtables and other forms of engagement, where established and growing companies can come together to learn, discuss and debate. 
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