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Weekly Oil & Gas Market Highlights: January 24, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) January 24, 2013 January 17, 2012 % Change
Oil – WTI
(USD per barrel)
$95.95 $95.49 0.5%
Oil – Brent
(USD per barrel)
$113.28 $111.10 2.0%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.45 $3.49 -1.4%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude futures rose 0.5% last week driven by positive economic data from the U.S. and China and an upward revision in IEA’s 2013 global oil demand forecast. The gain was partially negated by operational issues in the newly expanded Seaway pipeline and a higher-than-expected rise in U.S. oil inventories.

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

  1. Last Friday, crude futures rose during Asian trading as China’s National Bureau of Statistics released its fourth-quarter gross domestic product (GDP) figures. The data revealed China’s GDP grew at an annualized rate of 7.9% in the last quarter of 2012, up from 7.4% in the previous quarter. The positive economic news from Asia followed a U.S. jobs report the day before which showed that new claims for unemployment were the lowest in five years. The International Energy Agency (IEA) released is January Oil Market Report in which it raised its predictions for crude demand growth. The IEA forecast global demand growth would increase by 900,000 bbl/d (1%) in 2013 to an average demand of 90.8 MMbbl/d, up 240,000 barrels from last month’s prediction. The agency forecast that China’s oil consumption would rise by 390,000 bbl/d (4%) in 2013 to over 10 MMbbl/d, which is 135,000 bbl/d higher than last month’s figures. Non-OPEC countries are expected to boost production by 980,000 bbl/d to 54.3 MMbbl/d, an increase of 150,000 bbl/d from last month’s projection. However, oil prices fell after approaching $96 per barrel as the dollar began to rise versus a basket of currencies. Profit taking also became a factor later in the day as traders booked profits on the recent rise in oil prices. Crude futures have gained 12% since early November.
  2. On Monday, futures markets were closed in the U.S. for the Martin Luther King holiday.
  3. On Tuesday, crude futures rose during Asian trading as the Bank of Japan announced an inflation target of 2% for the country and an asset purchasing program that would continue as long as the bank deemed necessary to promote economic expansion. Traders viewed the move as bullish for crude prices. In other Asian economic news, China’s General Administration of Customs released data on Monday that showed the country’s crude imports totaled 5.6 MMbbl/d in December, up 8% from December 2012. Some risk premium came out of the market as Algerian military forces took over the country’s In Amenas gas plant, which had been overrun by militants in response to French military action in neighboring Mali. The attack on the facility has raised questions about the safety and security of workers at Western oil facilities across North Africa. During New York trading, futures received a boost from the broader market as equities rose on expectations of an improving U.S. economy. The day before, U.S. House Republican lawmakers introduced a bill that would extend the U.S. debt ceiling until May 19 in order to give the president and lawmakers time to negotiate a possible package of spending cuts. President Barack Obama announced on Tuesday that he would not block an extension of the debt ceiling. At the end of the trading day, crude futures settled at a four-month high. The February contract expired at the close of trade at $96.24 per barrel, up 68 cents, while the March contract moved to the front-month position and closed at $96.68 per barrel, up 64 cents.
  4. On Wednesday, crude futures were lower in Asian trading as traders hedged their bets ahead of U.S. Energy Information Administration (EIA)’s release of its oil stock report on Thursday. Some traders expected the data would show a larger-than-expected increase in stocks as refiners reduce operations for maintenance. During London trading, crude futures began to rise as data from the ZEW economic institute showed investor sentiment rose to 31.5 points, the highest figure since May 2010. The figure was up from 6.9 points in December. However, the German economy expanded at just 0.7% in 2012, the lowest level in four years, and the German government reduced its GDP growth forecast to just 0.4% for 2013. In New York trading, prices fell ~1.5% to just over $95 per barrel on news that the newly expanded Seaway pipeline was experiencing operational difficulties that reduced capacity from 450,000 bbl/d to just 175,000 bbl/d for an unknown period of time. A rising tide of crude production in the U.S. has resulted in the accumulation of a large build of crude stocks at Cushing, OK, which has pushed prices down. The expanded Seaway pipeline should alleviate some of the burgeoning stocks at the oil hub, but the temporary reduction in capacity will limit the movement of crude from Cushing and is bearish for prices.
  5. Crude futures rose in Asian trading on Thursday as the preliminary estimate of China’s Purchasing Managers Index (PMI) for January rose to 51.9 from 51.5 in December. The figure came on the heels of other positive economic news from the country such as robust fourth-quarter GDP growth and growing crude demand, which helped pushed futures higher during the week. In other positive economic news, new applications for jobless benefits in the U.S. dropped by 5,000 to 330,000 last week, which was above analyst expectations and the lowest level for this time of year since 2008. Also helping to lift crude prices, traders believe that the prior day’s sell-off in crude futures as a result of operational issues at the Seaway pipeline might have been overdone. Many traders believe the reduced capacity is a temporary setback and are optimistic that shipments would resume in due time. Futures fell as EIA released its weekly oil stocks data, which showed a bearish 2.81 MMbbl rise in crude inventories to 363.1 MMbbl. The figure was above analyst expectations. Stocks of gasoline fell 1.74 MMbbl to 233.3 MMbbl, while distillate stocks rose 508,000 bbl to 132.9 MMbbl. U.S. refinery utilization fell to 83.6 last week due to maintenance.

Natural gas prices

U.S. Henry Hub natural gas futures fell 1.4% last week due to warmer-than-expected weather forecasts and high storage levels. Although the weekly drawdown of 172 Bcf was higher than analysts’ expectations, traders remain concerned about the overall inventory levels, which are 12% higher than the five-year average.

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

  1. Last Friday, natural gas futures rose 7.2 cents (2%) to close at $3.566 per MMBtu. Futures were up >7% during the week – the largest weekly gain in the past two months –driven by falling gas in storage. However, some traders remain concerned about high overall storage levels due to a potentially bearish weather outlook for the rest of the heating season. Private forecaster MDA Weather Services predicted below-average temperatures in the Northeast and parts of the Midwest, which helped boost expectations of demand and contract prices. However, the 6–10 day National Weather Service (NWS) forecast showed below-average temperatures only in New England and a thin band running along the northern border with Canada and down the western coast. The less-accurate 8–10 day forecast showed below-average temperatures covering much of the western and central region of the country, but normal-to-above-average temperatures for the key East Coast region. The Baker Hughes natural gas-directed rig count dropped by 5 units to 429.
  2. On Monday, futures markets were closed in the U.S. for the Martin Luther King holiday.
  3. On Tuesday, natural gas futures closed down $0.08 cents to $3.558 per MMBtu, driven by profit-taking following the recent rise in prices. Natural gas futures received some support from nuclear power plant outages, which were 10,600 MW on Tuesday, up from 9,500 MW a year ago and above the five-year average of 8,400 MW. The weather forecast from the NWS for the 6–10 day period showed warmer-than-normal temperatures stretching from Texas to New England, which helped to keep a ceiling on prices during the day.
  4. Natural gas futures closed down $0.04 cents on Wednesday at $3.554 per MMBtu. The revised 6–10 day forecast from the NWS showed only the upper Midwest experiencing below-average temperatures. However, private forecaster MDA Weather Services noted warmer weather in its 6–10 day forecast, but expected the mild temperatures to give way to colder temperatures in February.
  5. On Thursday, natural gas futures closed down 10.8 cents (>3%) to close at $3.446 per MMBtu. EIA released its weekly natural gas inventory data, which showed a draw of 172 Bcf, exceeding analyst expectations. However, the draw compared bearishly to the five-year average draw of 176 Bcf. The storage picture also looked bearish with working gas in storage at 2,996 Bcf. Although the current storage figure is 5% lower than the same period last year, it is bearish against the five-year average. Traders are growing increasingly concerned about warmer-than-expected weather forecasts. Although the revised 6–10 day forecast from the  NWS showed below-average temperatures across New England, the Mid-Atlantic, and Midwest, traders are concerned that there is only one more month of winter before temperatures are expected to begin rising. With storage near historic highs, the heating season looks set to end with large volumes of gas still in storage.

Futures curve

October 2013 WTI futures are just 1% higher than current prices, reflecting the average cost of carry, limited upside in demand, and adequate supply. However, the September 2013 natural gas futures premium widened to 5.7% due to the recent fall in near-month (February) delivery prices.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 14.21 15.10 -5.89%
Gasoline Demand (MMBPD) 8.43 8.32 1.32%
Distillate Demand (MMBPD) 3.37 3.45 -2.32%
Production (MMBPD) 6.99 7.04 -0.71%
Imports (MMBPD) 7.73 8.03 -3.74%
Stocks (million barrels) 363.1 360.3 0.78%
Rotary Rig Count 1,316 1,323 -0.53%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,996 3,168 -5.43%
Rotary Rig Count 429 434 -1.15%
Horizontal Rig Count 1,127 1,119 0.71%
Consumption (Bcf)* 1,888 (Oct 12) 1,798 (Sep 12) 5.01%
Gross Withdrawals (Bcf)* 2,571 (Oct 12) 2,427 (Sep 12) 5.93%
Canadian Imports (Bcf)* 242.3 (Oct 12) 246.4 (Sep 12) -1.66%
LNG Imports (Bcf)* 10.3 (Oct 12) 11.5 (Sep 12) -10.43%

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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