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Weekly Oil & Gas Market Highlights: April 11, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) April 11, 2013 April 4, 2012 % Change
Oil – WTI
(USD per barrel)
$93.51 $93.26 0.3%
Oil – Brent
(USD per barrel)
$104.27 $106.34 -1.9%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$4.14 $3.95 4.9%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude futures rose during the mid-week sessions boosted by positive economic news from China, an upward revision of Energy Information Administration (EIA)’s crude price outlook for 2013, and lower-than-expected inventory build. However, weak employment data from the U.S. and expectations of slowing global demand growth erased most of the gains.

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

  1. Crude futures were choppy during Asian trading last Friday as investors grew concerned about rising oil stockpiles and new disappointing unemployment numbers in the U.S. In Kazakhstan, six-party talks began with Iran on Friday over its nuclear program. Nuclear tensions between Iran and the West have helped keep futures prices elevated as the dispute continues. Crude futures fell later in the day as the U.S. Department of Labor announced that the U.S. added just 88,000 jobs in March, below analyst expectations of 200,000 jobs. The modest increase in employment was enough to move the unemployment rate to 7.6%, down by one-tenth of a point from February. Further, the Department of Commerce reported on Friday that U.S. oil imports fell 21% in February to their lowest level in 20 years as a result of rising U.S. production from liquids-rich shale plays. Crude futures closed for the day at $92.70 per barrel, down $0.56.
  2. On Monday, crude futures rose in early trading as nuclear talks with Iran closed over the weekend without a breakthrough in the negotiations. In Japan, the government announced that contaminated water had leaked into the soil at the Fukushima Daiichi nuclear power plant, which will likely delay a restart of the country’s nuclear reactors and increase crude imports by the country. Futures also trended upward as Nigeria’s Movement for the Emancipation of the Niger Delta (MEND) claimed responsibility for an attack in Nigeria’s southern oil-producing Bayelsa region. Attacks by the group in 2006-2009 had reduced the country’s oil output by nearly 30%. During New York trading, futures see-sawed as investors remained cautious ahead of  the release of minutes of the Federal Reserve’s Federal Open Market Committee (FOMC) meeting held on March 19-20, which could potentially cause a sharp reaction in the oil market. Futures closed at $93.36 per barrel, up $0.66.
  3. On Tuesday, oil futures rallied as China reported that consumer prices in the country rose at an annualized 2.1% in March, below both analyst expectations and the 3.2% rate in February. The news supported speculation that China can continue with expansionary economic policies without inflationary concerns. Later in the day, futures gained nearly 1% as the dollar fell to a three-week low versus the euro on speculation that the FOMC will continue its current policy of monetary expansion, which is bullish for crude prices. In its Short Term Energy Outlook, the Energy Information Administration (EIA) increased its forecast for WTI crude price for 2013 by 2.2%, from $91.92 per barrel in its previous estimate to $93.92 per barrel. The EIA also reduced its 2013 world oil consumption growth figure by 0.14 MMbbl/d to 1.0 MMbbl/d. Crude futures rose $0.84 to close at $94.2 per barrel.
  4. On Wednesday, crude futures fell as OPEC released its Monthly Oil Market Report, which showed a reduction in 2013 oil demand growth by 40,000 bbl/d to 800,000 bbl/d. It was the second consecutive reduction in OPEC’s growth estimate, deepening concerns about the global economy and the recent banking crisis in Cyprus. Oil futures rose as the EIA released its weekly oil stocks report, which showed that stockpiles rose 250,000 barrels to 389 MMbbl, which was below analyst expectations. However, a 900,000 barrel increase in stockpiles at Cushing, OK, tempered the futures price increase. Crude stockpiles are currently at their highest level in 23 years. Gasoline stockpiles were up 1.7 MMbbl last week, which led to a large sell-off of gasoline futures and caused more than a 2% decline in the fuel prices. Distillate stocks fell just 200,000 barrels. Crude futures closed for the day at $94.64 per barrel, up $0.44.
  5. On Thursday, traders largely shrugged off an accidental early-morning release of the minutes of the most recent FOMC meeting, which showed that the Fed was likely to continue its current expansionary policies for the time being. The release of the minutes had been planned for the afternoon, but the Fed mistakenly sent the minutes to an email list of Congressional staffers and industry lobbyists on Tuesday evening and therefore released the information to the public on Wednesday morning. Later in the day, futures prices fell as the International Energy Agency (IEA) joined the chorus of oil market watchdogs reporting an expected decline in 2013 world oil demand growth. The agency reduced its oil demand growth estimate by 45,000 bbl/d to 795,000 bbl/d in 2013. The news sent oil futures falling >1.5% and considerably increased the downside sentiment for oil futures. WTI crude futures fell $1.13 to close at $93.51 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures rallied this week supported by strong inventory data, which is currently below the five-year average. However, prices experienced some downward movement due to profit-booking and above-average temperature forecasts.

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

  1. Natural gas futures ended up 17.8 cents (4.5%) last Friday at $4.125 per MMBtu, the highest one-day gain in four months. The increase was driven by bullish gas withdrawals over the past several weeks as a result of late-season cold temperatures across much of the country. Last week’s cold temperatures are expected to contribute to another strong storage draw in this week’s EIA natural gas storage report. Currently, working gas inventories are at 1,687 Bcf, indicating the first time the storage figure has fallen below the five-year average since September 2011. Trading volume was 792,000 contracts, the third-highest volume ever. The 6–10 day forecast from the National Weather Service (NWS) shows below-average temperatures extending down the central portion of the country, with above-average to average temperatures on the East and West coasts. The 8–14 day forecast shows the area of below-average temperatures retreating in the south-central region of the country.
  2. On Monday, natural gas futures closed down 5.1 cents at $4.074 per MMBtu on profit-taking after Friday’s rise, which boosted natural gas futures to the highest level in 20 months. Contract prices were also pressured by revised forecasts from the NWS that showed temperatures well above average all along the Gulf and East coasts in the 6–10 day forecast. The 8–10 day forecast showed the warm trend expanding across the southwest, reaching the West Coast as well.
  3. On Tuesday, natural gas futures continued its fall due to profit-taking and growing pressure from less-supportive weather forecasts. Many traders believe that markets may be due for a pullback with the onset of the shoulder season. Many market participants expect to see another strong withdrawal of gas in storage, but it could be the last draw this season as warmer spring and summer temperatures approach. At current price levels, natural gas is less competitive than coal, which is expected to reduce the size of upcoming gas withdrawals. Henry Hub natural gas futures closed down 5.7 cents at $4.017 per MMBtu.
  4. Natural gas futures ended higher on Wednesday, driven by expectations of an above-average storage withdrawal and what could be the last storage draw of the season. The contract briefly rose as high as $4.161 per MMBtu but gave back part of that gain as revised weather forecasts showed below-average temperatures intensifying in the north-central part of the country and moving southward. Colorado State University released its 2013 hurricane season outlook, which called for 18 tropical storms and nine hurricanes. Natural gas futures closed up 6.8 cents at $4.085 per MMBtu.
  5. Natural gas futures ended higher on Thursday as the EIA reported another withdrawal from working gas in storage. EIA’s weekly gas storage data showed a 14 Bcf withdrawal, which was below analyst expectations, but the draw was still considered bullish since a modest build is usually expected at this time of year. Gas in storage currently stands at 1,673 Bcf. Natural gas futures ended the day up 5.4 cents (1.3%) at $4.139 per MMBtu.

Futures curve

December 2013 WTI futures are 0.5% 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 7.5% to near-month (May) 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) 15.11 15.01 0.67%
Gasoline Demand (MMBPD) 8.48 8.52 -0.47%
Distillate Demand (MMBPD) 3.85 3.88 -0.77%
Production (MMBPD) 7.18 7.15 0.42%
Imports (MMBPD) 7.72 7.93 -2.65%
Stocks (million barrels) 388.9 388.6 0.08%
Rotary Rig Count 1,357 1,354 0.22%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,673 1,687 -0.83%
Rotary Rig Count 375 389 -3.60%
Horizontal Rig Count 1,084 1,099 -1.36%
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%

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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