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Weekly Oil & Gas Market Highlights: November 21, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures November 21,
2013
November 14,
2013
% Change
Oil – WTI
(USD per barrel)
$95.44 $93.76 1.8%
Oil – Western Canadian Select*
(USD per barrel)
$57.14 $55.83 2.3%
Oil – Brent
(USD per barrel)
$110.08 $108.54 1.4%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.70 $3.61 2.7%

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 crude futures rose nearly 2% this week largely due to positive employment data from the U.S. and expectation of growing financial stability in the Eurozone. Prices broadly traded sideways early in the week due to the mixed effects of rising global crude supply and increased fuel demand in the United States.

Closing price
Note: Intra-day prices (every 6 hours); December month futures expired on November 20, 2013
Data source: Bloomberg

  1. Last Friday, crude futures were driven slightly higher by rising refinery utilization in the United States. With maintenance season drawing to an end, refineries used 2.3% more crude over the past week. According to the Energy Information Administration (EIA), crude stocks are expected to persist at their highest levels since 1930 for several months due to rising domestic crude production—currently at the highest level since 1989. An expectation of strong petroleum products export demand, particularly for middle distillates, is helping to keep prices elevated. WTI crude futures for December delivery closed up $0.08 cents at $93.84 per gallon.
  2. On Monday, crude futures fell during Asian trading as investors waited for talks over Iran's nuclear program to continue on Wednesday. Iran's oil production has fallen from 4 MMbbl/d in 2005 to 2.6 MMbbl/d currently. Oil sanctions against the country have reduced its exports of crude to just over 0.70 MMbbl/d. According to French President Francois Hollande, the sanctions against Iran would continue until he is convinced Iran has "definitely renounced" its nuclear program. The Joint Organisations Data Initiative released data for September showing 7.8 MMbbl/d of exports from Saudi Arabia, the highest level since 2005. Rising Saudi exports have largely helped to replace falling oil exports from countries such as Iran (due to Western sanctions) and Libya (due to internal conflicts). Crude continued its fall later in the day as Federal Reserve Bank of New York President, William Dudley, delivered a speech expressing optimism about the state of the U.S. economy. A brightening economic picture for the U.S. fueled speculation the Federal Reserve may begin to pare back its $85 billion per month bond-buying program, which has helped to inflate asset values for commodities such as crude oil. WTI crude futures for December delivery fell $0.81 per barrel to $93.03 a barrel.
  3. On Tuesday, crude markets continued to look toward the upcoming six-party talks with Iran over its nuclear program. If an agreement is reached and sanctions are lifted, nearly 1 MMbbl/d of additional crude supply could enter the global oil market. Iran's crude output is estimated to have fallen 16% since sanctions were placed on the country in July 2012. Thus, Iran has also fallen from being OPEC's second-largest crude producer to the sixth largest. In Libya, a ship began loading an estimated 0.60 MMbbl of crude at the Brega export facility. A spokesperson for Libya's National Oil Corp announced that another tanker at the Mellitah facility would also begin loading. Libya's crude production in October rose to 0.45 MMbbl/d after falling from an average of 1.3 MMbbl/d during the first six months of this year. Oversupplied conditions continued to weigh on WTI futures during New York trading. Analysts expected EIA's weekly oil data to show crude inventories rising for the ninth straight week on stronger production. However, bulls saw a potential upside in rising refinery utilization, which was expected to increase again this week, boosting crude consumption. WTI crude futures for December delivery closed up $0.31 at $93.34 per barrel.
  4. On Wednesday, crude futures fell as Federal Reserve officials stated that an expected scale-back of the $85 billion per month bond-buying program could begin in “coming months." The news sent crude futures falling 1% as a weaker dollar is supportive of higher commodity prices. Crude futures seesawed during the day as there was no breakthrough in the six-party talks with Iran in Geneva. However, futures began rising later in the day, erasing the earlier loses as the EIA released its weekly oil data, which showed crude inventories rising by 375,000 barrels to 388.5 MMbbl, below analyst expectations of nearly 1 MMbbl. Further, traders noted the implied crude demand was over 20 MMbbl/d last week, the highest level in nearly three years. U.S. distillate stocks also fell 4.8 MMbbl to 112.5 MMbbl. Middle distillates have become a prime export product for refineries. WTI crude for December delivery expired almost unchanged at $93.33 per barrel, while the January contract moved into the front-month position and closed down 4 cents at $93.85.
  5. On Thursday, crude futures rose as European Central Bank (ECB) President Mario Draghi said the ECB had carefully considered the risks to financial stability before reducing interest rates earlier this month. Analysts speculate that the ECB may reduce the deposit rate from zero into negative territory for the first time. However, Draghi cautioned against making any inference about the deposit rate from his comments. The news sent the dollar down versus the euro. Futures advanced due to tensions in the Middle East as Saudi Arabia reported six mortar shells fell into an uninhabited area of the desert near the intersection of the kingdom's border with Iraq and Kuwait. WTI futures also rose as the U.S. Department of Labor reported that new jobless claims fell by 21,000 to 323,000 last week, which beat analyst expectations of 335,000. The figure was viewed as bullish for fuel demand, which is currently above 20 MMbbl/d, a five-year high according to the EIA. WTI futures for January delivery closed at $95.44 per barrel, up $2.11.

Natural gas prices

U.S. Henry Hub natural gas futures rose 2.7% this week, boosted by news about the season’s first withdrawal from the inventory and expectations of a colder winter across the country. However, growing U.S. natural gas production continues to limit the rise in prices.

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

  1. Last Friday, natural gas futures rose as revised weather forecasts from the National Weather Service (NWS) showed colder temperatures in the 6-10 day forecast, which was expected to spur heating demand. However, bears noted that the EIA forecasts this year's natural gas production will be up 1% from last year's record. Baker Hughes reported the gas-directed rig count rose by 5 units to 370; the fourth increase in five weeks as higher natural gas prices and increase in drilling efficiencies make natural gas extraction more profitable. Henry Hub natural gas futures closed up 5.5 cents at $3.66 per MMBtu.
  2. On Monday, natural gas futures rose during early trading as investors eyed forecasts of colder weather across much of the country next week. However, prices were unable to push above $3.70 per MMBtu on expectations of a rise in natural gas supply. After several failed attempts to surpass the $3.70 mark, futures tumbled possibly on technical selling and profit-taking. Henry Hub natural gas futures closed down 4.3 cents at $3.617 per MMBtu.
  3. On Tuesday, natural gas futures continued Monday’s falling trend due to technical trading. Forecasts of colder weather during the current week and the next were not enough to overcome the downward pull due to the rise in natural gas production. Henry Hub natural gas futures closed down 6.1 cents at $3.556 per MMBtu.
  4. On Wednesday, natural gas futures rose strongly as investors noted that both the 6-10 and 8-14 day forecasts from the NWS showed most of the country experiencing below-average temperatures. Bears noted that domestic production is steadily rising, which will require a sustained period of below-average temperatures to keep prices above $3 per MMBtu over the next few months. Traders expected EIA data—to be released on Thursday—to show the first withdrawal of the winter season. Natural gas inventories are currently just 2% below last year's level. Henry Hub natural gas futures closed up 11.8 cents at $3.674 per MMBtu.
  5. On Thursday, natural gas futures rose to a one-month high as EIA data showed a 45 Bcf decline in natural gas inventories to 3,789 Bcf, the first withdrawal of the season. The withdrawal compared bullishly to a 36 Bcf withdrawal during the same period last year and a five-year average withdrawal of just 2 Bcf. The size of the withdrawal was well above analyst expectations. Henry Hub natural gas futures for December delivery closed for the day at $3.702 per MMBtu, up 2.80 cents.

Futures curve

The forward curve for WTI crude is out of its backwardation trend after eight months, with June 2014 WTI futures 1.5% higher than near-month (December) futures, primarily due to current record-high U.S. crude supplies. June 2014 natural gas futures are at a premium of 1.7% over December 2013 futures due to expectations of 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) 15.45 15.41 0.26%
Gasoline Demand (MMBPD) 8.92 9.03 -1.22%
Distillate Demand (MMBPD) 4.33 3.79 14.25%
Production (MMBPD) 7.97 7.98 -0.13%
Imports (MMBPD) 7.86 7.84 0.26%
Stocks (million barrels) 388.5 388.1 0.10%
Rotary Rig Count 1,385 1,383 0.14%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,789 3,834 -1.17%
Rotary Rig Count 370 365 1.37%
Horizontal Rig Count 1,114 1,114 NC
Consumption (Bcf)* 1,910 (Aug 13) 1,911 (Jul 13) -0.05%
Gross Withdrawals (Bcf)* 2,555 (Aug 13) 2,551 (Jul 13) 0.16%
Canadian Imports (Bcf)* 230.3 (Aug 13) 228.5 (Jul 13) 0.79%
LNG Imports (Bcf)* 8.8 (Aug 13) 8.1 (Jul 13) 8.64%

Notes:
* The EIA does not provide weekly natural gas consumption, withdrawal and import numbers. Thus, the latest available monthly numbers are reported above.
NC – No Change
Data source: U.S. Energy Information Administration (EIA)

Comments and questions welcomed. Please contact DeloitteCenterforEnergySolutions@deloitte.com

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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.

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