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Weekly Oil & Gas Market Highlights: November 14, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures November 14,
2013
November 7,
2013
% Change
Oil – WTI
(USD per barrel)
$93.76 $94.20 -0.5%
Oil – Western Canadian Select*
(USD per barrel)
$55.83 $53.73 3.9%
Oil – Brent
(USD per barrel)
$108.54 $103.46 4.9%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.61 $3.52 2.4%

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 marginally this week due to rising U.S. crude supply and concerns over a possible tapering of Fed’s bond-buying program. The Brent-WTI price spread widened to the highest level since March due to continuing unrest in Libya.

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

  1. Last Friday, crude oil futures fell as China’s General Administration of Customs reported crude imports fell to 20.41 million metric tons, down 14% from last year and 5.3 million metric tons below September’s level. Futures also slid as Secretary of State John Kerry, met with Iranian diplomatic officials in Geneva in order to discuss the possibility of easing sanctions against Iran in exchange for a freeze on the country’s nuclear program. Current sanctions, which include an oil embargo, have reduced Iran’s crude flows by 1 MMbbl/d. Crude prices fluctuated during New York trading after the Department of Labor released data showing a higher-than-expected increase in employment in October. According to the data, 204,000 workers joined the U.S. workforce compared to just 163,000 in September. U.S. unemployment is currently at 7.3%, up from a five-year low. Separately, the Department of Commerce reported the economy grew at an annualized 2.8% in the third quarter, which was higher than expectations. The data was read as supportive of oil demand by bulls. However, bears noted that an improving economy suggests the Federal Reserve may act more quickly to taper its $85 billion per month bond-buying program, which has been supportive of crude prices. WTI crude futures for December delivery closed at $94.60 per barrel, up $0.40.
  2. On Monday, crude futures rose in Asian trading as China announced its industrial production grew 10.3% year-on-year in October. The news of positive growth figures from China and rising U.S. GDP announced on Friday lent support to prices. Crude futures fell during European trading as diplomatic talks between the West and Iran continued. However, futures rose later in the day as six-party talks with Iran failed to reach an agreement on freezing the country’s nuclear program. The news was bullish for crude as continued sanctions will keep Iranian supplies off the global market. Further negotiations with Iran will continue in December. WTI crude rose $0.54 to close at $95.14 per barrel.
  3. On Tuesday, crude fell during Asian trading as traders awaited the results of China’s Third Plenum. The meeting, held once every 10 years, is expected to result in major economic reforms in the country. Energy analysts are looking for reforms that reduce government control of energy prices and soften regulatory control over the industry, which is expected to spur more private sector participation. Crude futures fell further as the International Energy Agency (IEA) released its annual World Energy Outlook. The report stated the U.S. is expected to become the world’s largest crude producer in 2015, outpacing Russia. The IEA sees U.S. production rising to 11.6 MMbbl/d in 2020, up from 9.2 MMbbl/d in 2012 due to increased production from shale formations. OPEC, in its monthly Oil Market Report, reported production of 29.89 MMbbl/d in October, nearly unchanged from the September figure. During New York trading, futures tumbled after Atlanta Federal Reserve President, Dennis Lockhart, revealed he expects a possible tapering in Fed’s bond-buying program as early as next month. The program has weakened the dollar, inflating asset values for commodities such as crude oil. WTI crude futures plunged 2.2% or $2.10 to close at $93.04 per barrel, a five-month low and the largest one day decline in two months.
  4. On Wednesday, crude futures rose during Asian trading as investors went bargain hunting following Tuesday’s steep decline. At the start of the day, the December contract was in deep contango, trading at a premium of $0.50 to the January contact. Later in the day, Brent futures rose more quickly than the U.S. WTI benchmark crude as protestors blocked the entrance to Libya’s 120,000 bbl/d Zawiya refinery. Ongoing strikes have reduced Libya’s 1.4 MMbbl/d production to just 250,000 bbl/d in recent weeks. The continuing unrest in Libya has pushed Brent’s premium over WTI to more than $14 per barrel, the highest level since April of this year. WTI crude futures for December delivery closed up $0.84 at $93.88 per barrel.
  5. On Thursday, crude futures rose during Asian trading as traders eyed a statement released by incoming Federal Reserve Chairman Janet Yellen in which she suggested the Fed should continue its bond-buying program, citing unemployment at 7.3% in October. Brent strengthened versus WTI on continued unrest in Libya as a group of protestors blocked a tanker from loading at the Hariga port. Brent’s premium to WTI climbed to $14.50 per barrel on the news. WTI futures fell during U.S. trading as the Energy Information Administration (EIA) released data showing crude inventories rising 2.64 MMbbl—well above analyst expectations—even as refinery utilization grew 1.9% to 88.7%, the largest increase since June. U.S. crude production continues to rise and currently stands at 7.98 MMbbl/d, the highest level since January 1989. Domestic production outstripped imports of 7.84 MMbbl/d. The decline in WTI’s price sent the Brent-WTI spread to $14.78 per barrel, the highest level since last March. WTI crude futures closed down $0.12 at $93.76 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures rose over 2% this week primarily due to expectations of colder weather. Lower-than-expected build in natural gas inventory also supported the prices while traders remained concerned about high levels of U.S. gas supply.

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

  1. Last Friday, natural gas futures rose for the fourth straight day on revised weather estimates showing cooler-than-normal temperatures across the eastern half of the country in the 6–10 day forecast from the National Weather Service (NWS). Baker Hughes reported that the gas-directed rig count rose by 5 units to 365 rigs. Henry Hub natural gas futures closed up 4 cents at $3.559 per MMBtu.
  2. On Monday, natural gas futures rose as revised forecasts from the NWS showed cold weather conditions persisting in the eastern half of the nation. However, long-term forecasts showed temperatures moderating, which helped keep the upside limited. Henry Hub natural gas futures rose 1.5 cents, closing at $3.574 per MMBtu.
  3. On Tuesday, natural gas futures rose for the sixth straight session, the longest bull run in over a year, as revised forecasts predicted cooler-than-average weather across much of the country for the next two weeks. Investors largely ignored a brief warm spell expected this week. Henry Hub gas futures closed up 4.3 cents at $3.617 per MMBtu.
  4. On Wednesday, natural gas futures fell on profit-taking after recent gains. Natural gas had been up 5% since the beginning of the six-session bullish streak. Many traders felt the market was overbought and due for a correction. Some traders believed the EIA’s weekly natural gas inventory report would show a bearish rise in gas inventories. They were also concerned about current high levels of supply at 3,814 Bcf. Henry Hub natural gas futures closed down 5.1 cents at $3.566 per MMBtu.
  5. On Thursday, natural gas futures ended a seesaw session higher, after starting the day with a 1.7% decline on expectations of a bearish build in gas inventories. Futures reversed course, however, even though the EIA released data showing a 20 Bcf build in natural gas inventories. The market viewed the build as neutral since it was broadly in line with analyst expectations. The build was 2% below last year’s figure and 1.5% above the five-year average build for this time of year. Analysts expect this week’s build will be the last this injection season as winter demand outstrips gas supplies and drawdowns begin. Henry Hub gas futures closed up 3.9 cents at $3.605 per MMBtu.

Futures curve

The forward curve for WTI crude snapped out of its backwardation trend after eight months, with June 2014 WTI futures 0.6% 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 2.5% 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) 15.41 15.07 2.26%
Gasoline Demand (MMBPD) 9.03 9.29 -2.80%
Distillate Demand (MMBPD) 3.79 4.51 -15.96%
Production (MMBPD) 7.98 7.86 1.53%
Imports (MMBPD) 7.84 7.22 8.59%
Stocks (million barrels) 388.1 385.4 0.70%
Rotary Rig Count 1,383 1,376 0.51%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,834 3,814 0.52%
Rotary Rig Count 365 360 1.39%
Horizontal Rig Count 1,114 1,104 0.91%
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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