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Weekly Oil & Gas Market Highlights: September 12, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures September 12, 2013 September 05, 2013 % Change
Oil – WTI
(USD per barrel)
$108.60 $108.37 0.2%
Oil – Western Canadian Select*
(USD per barrel)
$82.94 $82.88 0.1%
Oil – Brent
(USD per barrel)
$112.63 $115.26 -2.3%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.64 $3.58 1.8%

Data sources: Bloomberg; CME Group
* Western Canadian Select 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 fluctuated during early sessions this week due to tensions over a possible U.S. military strike on Syria. Prices settled marginally higher with traders staying on the sidelines as the U.S. and Russia planned a meeting to discuss a diplomatic solution to the Syrian issue.

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

  1. Last Friday, crude futures rose due to weaker-than-expected employment data, which increased speculation the Fed would continue its $85 billion per month bond buying program. The Department of Labor reported non-farm employment grew by 169,000 jobs in August, below analyst expectations. The unemployment rate fell slightly to 7.3% in August, down from 7.4% in July, but further examination of the data showed the lowest U.S. workforce-participation rate (63.2%) in the past 35 years. At the conclusion of the G20 summit in St. Petersburg, Russia, President Obama announced he would take the case for action against Syria to the American people in a televised address on Tuesday night. Separately, Russian President Vladimir Putin stated rebel factions in Syria were responsible for the use of chemical weapons. Crude futures rose over 2% to a two-year high as traders grew concerned the impasse over military action in Syria was growing and could quickly become a focal point of larger regional tensions. WTI crude futures moved up $2.16 to close at $110.53 a barrel.
  2. On Monday, crude prices eased as the political process to gain Congressional approval for a military strike on Syria began to slow. In addition to President Obama’s appearances on major news outlets on Monday and speech Tuesday night to rally support for a strike; White House aides met privately with members of Congress to gain their support. While a vote for authorization is not expected until next week, popular and Congressional sentiments have been running strongly against approving a strike on Syria. On the diplomatic front, momentum toward a military strike took an unexpected turn with an offhand remark by Secretary of State John Kerry in London as he attempted to rally British support with UK Foreign Secretary William Hague. In response to a question, Kerry stated Syria could avoid a strike if it turned over its chemical weapons to the “international community” within a week. The State Department was quick to clarify Kerry’s comments were not a proposal, but a “rhetorical argument about the impossibility” of Syrian compliance. Russian Foreign Minister Sergey Lavrov seized the offer and called on the Syrian government to turn over its chemical weapons to international control. The Syrian government “welcomed” the initiative. Crude futures fell nearly 1% as the prospects for a military strike in the near term dimmed. Futures closed down $1.01 at $109.52 per barrel on the NYMEX.
  3. On Tuesday, crude futures fell during Asian trading as tensions over a strike on Syria began to wane. The Syrian government agreed to work on turning over its chemical weapons to international control. President Obama agreed to consider the Russian-backed proposal originating from comments by the U.S. Secretary of State. President Obama spoke separately with French President, François Hollande and UK Prime Minister, David Cameron, as well as leaders in China and Russia about the viability of a proposal to turn Syria’s chemical weapons over to international control. On Capitol Hill, the Senate delayed a vote scheduled for Wednesday, which would have initiated debate on a resolution for military action against Syria. However, a small bipartisan group of lawmakers began work on new legislation that would authorize a military strike on Syria while providing time for the United Nations to pursue a diplomatic solution. Libyan supply concerns eased as OPEC announced that despite recent strikes and production shutdowns in Libya, production from Saudi Arabia—which was up 156,000 bbl/d—and Iraq made up for much of the lost supply. Crude futures closed down $2.13 at $107.39 per barrel.
  4. On Wednesday, crude futures fell during early trading following Tuesday’s speech by President Obama outlining plans to pursue diplomatic solutions to the crisis in Syria and requesting Congress delay a vote on a resolution to approve military action. Meanwhile, Russia reportedly sent the U.S. a plan to put Syria’s chemical weapons under international control as a starting point of discussions between the two countries. Futures rose later in the day as two car bombs exploded in the Sinai Peninsula in Egypt killing six Egyptian soldiers. Egyptian government forces are fighting militants in the region. However, futures began falling again as the Energy Information Administration (EIA) released its weekly oil stocks report, which showed crude inventories falling by 219,000 to 360 MMbbl. Analysts had expected a larger decline in inventories. Crude futures closed for the day at $107.56 per barrel, up $0.17.
  5. On Thursday, crude futures rose as oil traders increasingly considered diplomatic efforts to avert a military strike on Syria with skepticism. Many traders see the move as an attempt by both sides to buy time, which will likely be used by the Obama administration to rally support for a strike. Syrian President, Bashar Assad, declared on Russian television he is ready to turn over his country’s chemical weapons to international control. The International Energy Agency revised its forecast for oil demand growth in 2014, raising its estimate by 70,000 bbl/d to 92 MMbbl/d in 2014 from 90.9 MMbbl/d in 2013. Crude futures closed for the day at $108.60 per barrel, up $1.04.

Natural gas prices

U.S. Henry Hub natural gas futures rose ~2% this week primarily due to the lower-than-expected inventory build. Earlier, prices were supported by revised weather forecasts showing warmer temperatures and news about a possible hurricane formation near Bermuda.

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

  1. Last Friday, natural gas futures fell on continued downward momentum driven by EIA’s weekly gas storage data released the day before, showing a bearish 65 Bcf build in natural gas inventories. The build compared bearishly to the 27 Bcf build during the same period last year. Also exerting downward pressure on prices, Baker Hughes reported the gas-directed rig count rose by 14 rigs to 394. Natural gas rigs have been steadily rising as producers have begun to take advantage of current prices to restart projects suspended last year when natural gas prices fell to historic lows. Henry Hub natural gas futures closed down 4.5 cents at $3.53 per MMBtu.
  2. On Monday, natural gas futures rose as revised weather forecasts from the National Weather Service (NWS), which showed above-average temperatures covering much of the Midwest from Texas to Nebraska. Traders also noted a low-pressure zone near Bermuda, which had a 20% chance of developing into a tropical storm according to the National Hurricane Center (NHC). Tropical Storm Humberto, off the coast of Cape Verde, was expected to turn into a hurricane by Wednesday. Natural gas futures closed up 7.5 cents at $3.605 per MMBtu.
  3. On Tuesday, natural gas futures fell as forecasts from the NWS showed average-to-below-average temperatures in the Northeast and Mid-Atlantic regions over the next 6–10 days. As a result of recent mild temperatures in the Northeast, traders were expecting another bearish inventory report from the EIA this week, which put pressure on prices during the day. The NHC reported Tropical Storm Gabrielle had formed off the coast of Bermuda, but was tracking Northwest away from natural gas producing areas. Tropical Storm Humberto continued to gain strength as it moved West-Northwest from Cape Verde. Natural gas futures closed down 2.1 cents at $3.584 per MMBtu.
  4. On Wednesday, natural gas futures extended Tuesday losses due to concerns over rising inventories as the market enters the shoulder season between the peak winter and summer demand periods. Futures rallied in the afternoon on revised weather forecasts showing warmer temperatures in the 8–10 day projection, but the rally was not strong enough to overcome earlier downward sentiment. Natural gas futures closed down 1.7 cents at $3.567 per MMBtu.
  5. On Thursday, natural gas futures rallied as the EIA released data showing a 65 Bcf increase in working gas in storage, which was just below analyst expectations. The injection was still above the year-ago injection of 27 Bcf and the five-year average injection of 62 Bcf. Prices rose nearly 2.5% on the news. Energy traders continued monitoring tropical storm activity that could affect Gulf of Mexico production. Offshore production in federal waters currently accounts for just 4.2% of total natural gas supply, down from 16% in 2005, due to the rise of onshore shale gas production in the United States. Natural gas futures closed for the day at $3.638 per MMBtu, up 7.1 cents.

Futures curve

The forward curve for WTI crude is in backwardation, with June 2014 WTI futures 9.3% lower than near-month (October) futures due to growing North American supply and concerns over a slowdown in global economic growth. However, June 2014 natural gas futures are at a premium of 6.3% over October 2013 futures due to expectations of moderate supply growth and 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) 15.90 15.94 -0.25%
Gasoline Demand (MMBPD) 8.61 9.09 -5.28%
Distillate Demand (MMBPD) 3.52 3.80 -7.37%
Production (MMBPD) 7.74 7.62 1.57%
Imports (MMBPD) 8.01 8.3 -3.49%
Stocks (million barrels) 360.0 360.2 -0.06%
Rotary Rig Count 1,365 1,388 -1.66%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,253 3,188 2.04%
Rotary Rig Count 394 380 3.68%
Horizontal Rig Count 1,075 1,078 -0.28%
Consumption (Bcf)* 1,726 (Jun 13) 1,740 (May 13) -0.80%
Gross Withdrawals (Bcf)* 2,443 (Jun 13) 2,540 (May 13) -3.82%
Canadian Imports (Bcf)* 228.9 (Jun 13) 229.0 (May 13) -0.04%
LNG Imports (Bcf)* 8.1 (Jun 13) 5.6 (May 13) 44.64%

* 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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