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Weekly Oil & Gas Market Highlights: January 09, 2014

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures January 09,
2014
December 19,
2013
% Change
Oil – WTI
(USD per barrel)
$91.66 $98.77 -7.2%
Oil – Western Canadian Select*
(USD per barrel)
$72.06 $68.38 5.4%
Oil – Brent
(USD per barrel)
$106.39 $108.67 -2.1%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.01 $4.46 -10.2%

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 7 percent during the three-week period due to growing supply from the U.S. and Libya. Positive U.S. economic data provided an initial boost but concerns about further tapering of the Fed’s bond-buying program pulled down the prices.

Weekly closing price
Note: Chart values are daily closing prices; Next edition will have the regular intra-day pricing data
Data source: Bloomberg

  1. Over the two-week year-end holiday period, WTI crude futures fell from a close of $98.77 per barrel on December 19 to $95.44 per barrel on January 2. Downside news was driven by events in Africa while upside news was seen in an improving U.S. economy. During the Christmas week, crude futures rose nearly 1 percent as the Department of Commerce reported the U.S. economy expanded at 4.1% in the third quarter, up from an initial estimate of 3.6%, while consumer purchases, which account for 70% of the U.S. economy, were up 2% over the same period. Also, according to data reported by Thomson Reuters/University of Michigan on December 23, consumer confidence increased to 82.5 in December from 75.1 in November, which helped boost crude futures. Unemployment figures were also supportive as the Department of Labor (DOL) released data on December 26 showing new jobless claims fell 42,000 to 338,000 new claims, beating analyst expectations. The DOL data on January 2 for the previous week showed jobless claims falling by 2,000 to 339,000 new claims. On the same day, the Institute for Supply Management reported manufacturing activity in the U.S. continued to expand in December with an index reading of 57, which was down only slightly from the November figure of 57.3. The collection of positive cues from the U.S. economy increased expectations for rising demand for crude. Downside news over the period was driven by events in Africa. On December 23, rebels supporting deposed Vice President, Riek Machar, in South Sudan — with exports of around 0.22 MMbbl/d — captured some oil wells in Unity state, which produces around 45,000 bbl/d. The government evacuated many oil workers prior to the raid. However, oil production in South Sudan’s Upper Nile state continued uninterrupted. The country has the third-largest oil reserves in Africa after Nigeria and Angola. Oil market concerns began to ease as the two sides entered into peace talks facilitated by East African mediators. Meanwhile in Libya, production resumed at the Messla and Sarir fields and refinery operations restarted at the Tobruk and Sarir facilities. Labor protests across the nation have kept most of Libya's oil supplies off world markets for nearly two months. The return of Libyan supplies is helping to ease crude prices, which had previously risen in response to the cessation of exports from the country.
  2. Last Friday, crude futures fell as protestors at Libya’s 0.35 MMbbl/d El Sharara field ended demonstrations, allowing production to resume. Production at the field had been suspended for two months due to continued labor unrest. Libya’s crude exports have fallen from nearly 1.6 MMbbl/d to around 0.2 MMbbl/d as a result of the labor disputes. A return to normal production is expected to help push prices lower. Futures fell further later in the day as the Energy Information Administration (EIA) released its weekly petroleum data. Although the report showed a 7 MMbbl drop in crude inventories, the market reacted to bearish signals from rising inventories of petroleum products. Distillate inventories rose by 5 MMbbl to 119.1 MMbbl, which was well above analyst expectations, while gasoline stockpiles rose by 800,000 bbl to 220.7 MMbbl. WTI crude futures for February delivery closed down $1.48 at $93.96 per barrel.
  3. On Monday, crude futures fluctuated as the government of South Sudan began peace negotiations with rebel leaders on Sunday — the first direct talks between the two sides since fighting began in the oil-producing country. During London trading, crude futures moved largely sideways as investors noted plans for a military assault on Al Qaeda-linked militants in Fallujah, Iraq, by the government forces. Militants have taken over Fallujah and the provincial capital of Ramadi in the first large-scale assault against major cities since the U.S. invasion in 2003. Secretary of State, John Kerry, said the U.S. is willing to assist the government of Iraq, but would commit no troops. During New York trading, investors were pessimistic about upside in the crude market as concerns grew that EIA’s weekly oil data would show inventories rising for the first time in six weeks, driven by weak petroleum products demand. WTI crude futures closed down $0.53 at $93.43 per barrel.
  4. On Tuesday, crude futures rose as Libya’s navy blocked an attempt by rebel forces to export oil from the Es Sider port. Naval forces warned the vessel against loading crude from facilities not under the control of the National Oil Corporation. Crude futures also found support as Germany’s unemployment fell for the first time in five months. The German Federal Labor Agency reported the number of unemployed in the country fell by 15,000 to 2.97 million. The market viewed the strength in the EU’s largest economy as a positive indicator for the health of the overall European economy. WTI crude futures rose $0.24 to close at $93.67 per barrel.
  5. On Wednesday, crude futures traded largely sideways as Libya’s state-run news agency reported the country’s oil production had risen to over 0.53 MMbbl/d, citing oil ministry data. During New York trading, crude futures were up modestly prior to the release of EIA’s weekly oil market report on expectations of a sixth straight week of declines in crude stockpiles. However, futures quickly turned bearish as the data showed continued increases in petroleum products inventory due to falling demand. Gasoline inventories increased by 6.24 MMbbl to 227 MMbbl, the highest level since last March. Distillate supplies rose 5.83 MMbbl to 125 MMbbl, while demand for total products fell 782,000 bbl/d to 18.2 MMbbl/d. Crude inventories fell by 2.68 MMbbl to 357.9 MMbbl, but the news was overshadowed by the bearish news in the products market. WTI crude futures closed down $1.34 at $92.33 per barrel.
  6. On Thursday, crude futures rose slightly as militants blew up a pipeline connecting Kirkuk’s oilfields to nearby refineries. Iraq holds the world’s fifth-largest reserves of crude oil. The explosion did not affect exports to neighboring Turkey. In Libya, the port of Zawiya was set to open for crude exports next week. The port will begin exporting crude from the Sharara field, which resumed operations late last week. Crude futures turned negative during New York trading as investors noted rising U.S. domestic production. According to the EIA, U.S. crude production rose by 24,000 bbl/d last week to 8.15 MMbbl/d, the highest level of domestic production since September 1988. WTI crude futures closed down $0.67 at $91.66 per barrel on the NYMEX.

Natural gas prices

Henry Hub natural gas futures fell 10.2 percent over the three-week period, despite sub-zero temperatures across the U.S. that led to a strong drawdown in inventories. After a sharp rally, traders booked profits pushing down the prices. Further adding to the fall were the forecasts of moderating winter weather.

Weekly closing price
Note: Chart values are daily closing prices; Next edition will have the regular intra-day pricing data
Data source: Bloomberg

  1. Over the two-week holiday period, Henry Hub natural gas futures fell from a close of $4.460 per MMBtu on December 19 to $4.321 per MMBtu on January 2, primarily due to end-of-year profit-taking after the price rally driven by arctic-like winter in eastern United States. During the first week, natural gas futures rose to their highest levels since July 2011 on December 23 due to speculation that an unusually cold start to the new year could spark rising heating demand. Expectations proved correct as a polar vortex descended across most of the eastern half of the country, giving natural gas markets the most encouraging start to the heating season since 2000. The cold conditions helped drive strong natural gas storage withdrawals as supplies fell from 3,248 Bcf on December 13 to 2,974 Bcf on December 27, as reported by the EIA. However, downside came on the last trading day of the year, December 31, as investors looked to book year-end profits, sending natural gas futures down 19.7 cents, the sharpest decline in eight months. Despite the fall, natural gas futures rose 26 percent in 2013—the largest gainer in the S&P GSCI index of 24 commodities.
  2. Last Friday, natural gas futures closed down, driven by bearish weekly natural gas inventory data reported by the EIA the day before. The agency reported natural gas in storage fell by 97 Bcf, which was below analyst expectations. The decline compared bearishly with a 126 Bcf decline during the same period last year and the five-year average withdrawal of 121 Bcf. Pessimism over the weak withdrawal largely countered the impact of sub-zero temperatures across the Midwest and Northeast. Winter heating demand looked supportive over the short term, which helped limit the downside, but forecasts for the latter half of January showed temperatures moderating. Nuclear power plant outages of 1,540 MW also failed to offer much support. Outages compared bearishly with 7,500 MW out a year ago and the five-year average figure of 4,750 MW. Henry Hub natural gas futures closed down nearly 2 cents at $4.304 per MMBtu.
  3. On Monday, natural gas futures ended nearly unchanged in light trading volume. Cold arctic air swept across much of the country, driving up natural gas-derived energy demand.  According to Bentek, Monday’s natural gas usage was a record 130.4 Bcf, the highest single-day consumption of natural gas in U.S. history, up nearly 30% above normal consumption during this time of the year. Nearly 50% of U.S. households use natural gas for heating while power generation accounts for a third of all natural gas use in the country. However, bears noted EIA’s recent Short Term Energy Outlook in which government data showed U.S. marketed natural gas production will increase for the seventh straight year to a record 71.43 Bcf/d, up 1.4 percent year-on-year. Low levels of nuclear power plant outages also continued to drag on natural gas demand. Monday’s outages of 1,860 MW were below last year’s level of 9,700 MW and the five-year average of 5,180 MW. Henry Hub natural gas futures closed up 0.2 cents at $4.306 per MMBtu.
  4. On Tuesday, bulls and bears continued to battle, ending the day virtually unchanged. Bulls saw optimism in current strong demand driven by the polar vortex — a mass of freezing air — across the eastern part of the country. The U.S. was estimated to consume 134.3 Bcf of gas on Tuesday, another new record for gas consumption on a single day. However, bears noted the arctic-like conditions were set to dissipate later in the week in many major cities including New York, Chicago, and Minneapolis. Henry Hub natural gas futures closed down 0.7 cents at $4.299 per MMBtu.
  5. On Wednesday, natural gas futures fell on expectations of moderating temperatures in the latter half of the week, which were expected to endure through much of the rest of January. Bulls noted this week’s natural gas data from the EIA should reflect a bullish drawdown compared to last year’s draw and the five-year average. Henry Hub natural gas futures closed down 8.3 cents at $4.216 per MMBtu.
  6. On Thursday, natural gas futures shrugged off earlier losses in the week at first, but could not hold on to the gains. EIA’s report of a 157 Bcf drawdown in natural gas inventories lent strength to the market, as it was above analyst expectations and compared bullishly with the five-year average withdrawal of 131 Bcf. However, later in the day analysts noted temperatures continued to moderate and the outlook for demand for the rest of January looked bearish. Investors quickly moved to book profits, sending natural gas futures down nearly 5%, the largest one-day price decline in eight months. The price briefly dipped below $4 per MMBtu during the day. Nuclear power plant outages of 2,800 MW provided little support. Current outages were less than half the 8,440 MW level of a year ago and below the five-year average of 5,780 MW. Henry Hub natural gas futures closed down 21.1 cents at $4.005 per MMBtu.

Futures curve

The forward curve for WTI crude is in backwardation, with September 2014 WTI futures 3% lower than near-month (February) futures, as rising crude supplies are expected to contribute to pipeline bottlenecks at Cushing despite the start of the Gulf Coast pipeline in early 2014. While the seasonal demand surge drove near-term (February) natural gas prices higher, the expectation of growing supply in 2014 weighed on September futures.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 16.13 15.93 1.26%
Gasoline Demand (MMBPD) 8.27 9.02 -8.31%
Distillate Demand (MMBPD) 3.02 4.01 -24.69%
Production (MMBPD) 8.15 8.06 1.12%
Imports (MMBPD) 7.96 7.73 2.98%
Stocks (million barrels) 357.9 372.3 -3.87%
Rotary Rig Count 1,378 1,411 -2.34%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,817 3,248 -13.27%
Rotary Rig Count 372 369 0.81%
Horizontal Rig Count 1,148 1,145 0.26%
Consumption (Bcf)* 1,860 (Oct 13) 1,756 (Sep 13) 5.92%
Gross Withdrawals (Bcf)* 2,574 (Oct 13) 2,466 (Sep 13) 4.40%
Canadian Imports (Bcf)* 203.3 (Oct 13) 228 (Sep 13) -10.83%
LNG Imports (Bcf)* 5.6 (Oct 13) 16.9 (Sep 13) -66.86%

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

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