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Weekly Oil & Gas Market Highlights: November 7, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures November 7,
2013
October 31,
2013
% Change
Oil – WTI
(USD per barrel)
$94.20 $96.38 -2.3%
Oil – Western Canadian Select*
(USD per barrel)
$53.73 $59.03 -9.0%
Oil – Brent
(USD per barrel)
$103.46 $108.84 -4.9%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.52 $3.58 -1.7%

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 fell over 2% this week due to a stronger dollar against the euro and continued rise in the United States crude output. However, a moderate rise in the United States crude inventory data limited the downside. WCS prices fell to a 10-month low as Enbridge temporarily reduced the pipeline capacity of its mainline from Alberta due to operational issues.

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

  1. Last Friday, crude futures rose during Asian trading as China's Bureau of National Statistics released the country's official Purchasing Manager's Index (PMI) for October. The data showed an increase in the indicator to 51.4 in October, up from 51.1 in September. Later in the day, crude futures fell as investors eyed rising crude stocks in the United States. The Energy Information Administration's (EIA) weekly oil stocks data released the day before showed crude stocks rising by 4.1 MMbbl to 383.9 MMbbl, the highest level since June. Concerns about the rising stockpiles sent crude futures below $95 per barrel. Also exerting downward pressure on prices, the Institute of Supply Management released its PMI for the United States, which showed activity rising to 56.4 in October–the highest level since April 2011–from 56.2 in September. Analysts had been expecting the figure to fall slightly. The news caused the dollar to rise versus the euro, which is bearish for crude. WTI for December delivery fell $1.77 to close at $94.61 per barrel.
  2. On Monday, crude futures fell during Asian trading as Libya's National Oil Corporation announced it was preparing to load crude for export at its Mellitah facility on Tuesday and the Hariga facility should be ready to re-start export operations next week. However, the company also announced that crude production in the country currently was just 0.25 MMbbl/d, well below its production capacity of 1.4 MMbbl/d. During New York trading, futures regained about 0.5% due to a weaker dollar. The United States currency slid from its six-week high after the Commerce Department reported a 1.3% fall in core capital goods demand. The euro strengthened against the dollar on expectations of a possible interest rate cut in the upcoming European Central Bank council meeting on Thursday. WTI futures closed almost unchanged at $94.62 per barrel.
  3. On Tuesday, crude futures received support as clashes between government and militia forces erupted in the Libyan capital of Tripoli. Continued supply and export disruptions in Libya have kept Middle East tensions in focus in the oil market even amid talks between Western powers and Iran over its nuclear program. Crude futures fell later in the day as the Institute for Supply Management released data showing the non-manufacturing (services industry) index rose to 55.4 in October, up from 54.4 in September. The rise in the figure, on the heels of Friday's data showing improving manufacturing conditions, sent crude falling due to concerns the Federal Reserve may soon come under pressure to cut back its $85 billion per month bond-buying program. Western Canadian Select (WCS), the Canadian heavy crude, fell to the widest discount ($41.79 per barrel) to WTI since January 2013 primarily due to the apportionment of Enbridge's major pipeline from Alberta. The midstream company reduced the actual volumes shipped through the 0.80 MMbbl/d Line 4 pipeline from Alberta to Wisconsin by 13 percent due to operational issues. Further exerting pressure on WCS prices was rising oil sands output. Since the ramp-up of ExxonMobil's Kearl oil sands project in early September, the WCS-WTI discount had widened 65%, from $25 per barrel to over $40 per barrel. WTI crude futures fell $1.25 to close at $93.37 per barrel.
  4. On Wednesday, crude futures began rising in anticipation of the release of EIA's weekly petroleum stocks report. Traders noted that the American Petroleum Institute (API) released a bullish inventory report on Tuesday showing only a modest 871,000 barrel build in inventories. However, traders were more focused on the strong demand signals reported in the API data, with gasoline stockpiles falling 4.29 MMbbl and distillates declining 2.73 MMbbl. Investors believed the API data may be an indicator of what to expect from EIA's official data to be released later in the day. When EIA released its weekly crude data, expectations were confirmed as the report revealed a moderate 1.6 MMbbl rise in crude inventories. Crude futures rose in the largest gain in five weeks as a detailed study of the report revealed strong underlying demand. Gasoline stockpiles fell by 3.76 MMbbl to 210 MMbbl with implied demand for gasoline at 9.29 MMbbl/d, the highest level since the July 4th weekend. Distillate stocks, comprising diesel and heating oil, also showed a bullish 4.9 MMbbl drop. WTI crude futures rose $1.43 to close at $94.80 per barrel.
  5. On Thursday, crude futures came under pressure as traders noted geopolitical tensions subsiding in the Middle East as talks continued between the West and Iran over its nuclear program. Also, Libyan crude exports began to resume from formerly closed ports, returning supplies back to the world market. Separately, four traders filed a lawsuit alleging that some of the largest world oil companies had engaged in a conspiracy to manipulate spot prices for Brent crude over the past decade. The lawsuit is the latest of at least seven suits alleging price fixing in the Brent market. Crude futures fell later in the day as the U.S. Department of Commerce reported that the United States GDP rose 2.8% in the third quarter, which was above analyst expectations. The news sent the dollar higher versus a basket of currencies, which is bearish for crude demand. WTI crude futures for December delivery closed at $94.20 per barrel, down $0.60.

Natural gas prices

United States Henry Hub natural gas futures fell 1.7% this week largely due to forecasts of milder winter weather during November and December. In addition, rising natural gas production and record-high inventory levels continue to exert downward pressure on the prices.

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

  1. Last Friday, natural gas futures fell as traders eyed forecasts from the National Weather Service (NWS) for mild temperatures that were expected to reduce demand for natural gas-derived heating. Longer-term forecasts from private forecasters expect the temperatures in November and December to extend the moderate trend, which is bearish for the gas demand outlook heading into winter. Baker Hughes weekly rig count data showed gas-directed rigs fell by 16 to 360 active rigs. Henry Hub natural gas futures closed down 6.8 cents at $3.513 per MMBtu.
  2. On Monday, natural gas futures fell for the sixth straight session pressured by continued expectations of above-average temperatures for the winter season across much of the country, which was expected to lower demand for gas-derived heating. Revised forecasts from the NWS showed above-average temperatures in both the 6-10 and 8-14 day forecasts. Nuclear power plant outages failed to provide support. The Nuclear Regulatory Commission reported current outages of 12,800 MW, which were down from 26,800 MW during the same time last year and the five-year average outage of 20,100 MW. Henry Hub natural gas futures fell 6.8 cents to close at $3.445 per MMBtu.
  3. On Tuesday, natural gas futures initially weakened on continued expectations of mild weather. Further, bears noted rising gas production and EIA's 2013 predictions of record-high natural gas inventory levels for the third consecutive year. However, later in the day, bargain hunters seeking to capitalize on recent price declines helped limit the downside. Henry Hub natural gas futures closed up 2.1 cents at $3.466 per MMBtu.
  4. On Wednesday, natural gas futures extended Tuesday's gains on revised forecasts from the NWS calling for cooler weather over the next week, which was expected to boost heating demand. Some traders noted the market was due for a bounce following a 7% decline in futures prices over the past several sessions. Henry Hub natural gas futures closed up 3.2 cents at $3.498 per MMBtu.
  5. On Thursday, natural gas futures rose even though the EIA reported that working natural gas in underground storage increased by 35 Bcf, which was above last year's build of 27 Bcf, but in line with the five-year average injection of 36 Bcf. The market interpreted this data as relatively neutral and focused instead on forecasts for cooler weather, which pushed natural gas futures higher during the day. Henry Hub natural gas futures closed for the day at $3.519 per MMBtu, up 2.10 cents.

Futures curve

The forward curve for WTI crude is in backwardation, with June 2014 WTI futures 0.7% lower than near-month (December) futures, primarily due to growing North American supply. However, June 2014 natural gas futures are at a premium of 2.8% 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) 15.05 14.86 1.28%
Gasoline Demand (MMBPD) 9.05 9.07 -0.22%
Distillate Demand (MMBPD) 4.15 3.33 24.62%
Production (MMBPD) 7.85 7.90 -0.63%
Imports (MMBPD) 7.45 7.66 -2.74%
Stocks (million barrels) 383.9 379.8 1.08%
Rotary Rig Count 1,357 1,361 -0.29%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,779 3,741 1.02%
Rotary Rig Count 376 372 1.08%
Horizontal Rig Count 1,098 1,099 -0.09%
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.
Data source: U.S. Energy Information Administration (EIA)

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