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Weekly Oil & Gas Market Highlights: February 14, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) February 14, 2013 February 7, 2012 % Change
Oil – WTI
(USD per barrel)
$97.31 $95.83 1.5%
Oil – Brent
(USD per barrel)
$118.04 $117.24 0.7%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.16 $3.29 -3.7%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude oil futures closed 1.5% up in the past week, driven by European Central Bank’s support for the euro’s current valuation, OPEC’s production cut, and EIA’s increased oil consumption forecast for 2013. The gain was partially negated by EIA’s weekly report highlighting an increase in U.S. crude production to 7.06 MMbbl/d last week, the highest level since 1992.

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

  1. Last Friday, crude futures rose during Asian trading as China reported that its January crude oil imports rose 7.4% year-on-year to 5.92 MMbbl/d, its third- highest level of imports on record. Inflation data showed that China’s annualized inflation slowed to 2.0% in January, in line with analyst expectations. The figure was down from 2.5% in December, indicating the central government has broadly been able to keep domestic inflation under control. Futures were also supported by news that Organization of the Petroleum Exporting Countries (OPEC) trimmed production in January by 200,000 bbl/d to 30.45 MMbbl/d in reaction to what it perceives as current oversupply in the global market. News of Iran’s rejection of a U.S. offer of bilateral talks also lent support to futures as concerns over Middle East tensions continued. In New York trading, futures fell on news of heavy maintenance shutdown at two crude refinery units with a combined capacity of 290,000 bbl/d, which is expected to add to already large crude inventories at Cushing. Futures closed at $95.72 per barrel, down 0.1%.
  2. Crude futures fell in Asia on Monday on thin trading volumes due to the Chinese New Year holiday. Futures were supported by President Mahmoud Ahmadinejad’s statement that Iran will not bow to international pressure over its nuclear program, during a rally marking the anniversary of the Iranian Revolution. Israeli Prime Minister Benjamin Netanyahu stated that Iran is accelerating its nuclear program, but that it has not yet crossed a “red line”. Crude futures rose 1.4% following a statement by a European Central Bank council member that the euro is not overvalued and that governments should not try to weaken the currency. A strong euro is bullish for crude futures since it makes dollar-denominated crude more affordable. The euro rose 0.5% versus the dollar following the news. Futures closed at $97.03 per barrel, up 1.4%.
  3. On Tuesday, oil futures traded sideways as the Chinese New Year holiday continued. Futures rose during London trading as the finance ministers from the Group of Seven industrial nations pledged not to target exchange rates while attempting to stimulate their domestic economies. OPEC announced that it had revised up its 2013 global demand growth projections by 80,000 bbl/d to 800,000 bbl/d, attributing half of the rise in demand to China. The organization forecasts total world oil demand of 89.7 MMbbl/d in 2013. Organization for Economic Co-operation and Development (OECD) demand is expected to fall by 300,000 barrels over the period. During New York trading, the Energy Information Administration (EIA) released its monthly Short-Term Energy Outlook, which revised up the oil consumption forecast for 2013 by 100,000 bbl/d to 90.2 MMbbl/d. World supply is projected to increase by 1.0 MMbbl/d in 2013 and 1.4 MMbbl/d in 2014, driven by non-OECD demand growth.
    Crude futures closed at $97.51 per barrel, up 0.5%.
  4. On Wednesday, crude futures were largely range-bound in Asian trading ahead of the release of EIA’s weekly oil stocks data, which was expected to be bearish due to ongoing refinery maintenance. Oil fell during London trading as the International Energy Agency (IEA) cut its global demand forecast for 2013 by 90,000 bbl/d to 90.7 MMbbl/d. The projection contrasted with recent increases in oil consumption forecasts by the EIA and OPEC, but is in line with International Monetary Fund (IMF)’s reduction of its 2013 global gross domestic product (GDP) growth forecast to 3.5% from 3.6% a month earlier. Crude futures fell as Iran’s envoy to the International Atomic Energy Agency (IAEA) said that the outlines of an accord had been reached with IAEA inspectors, which reduced some of the geopolitical risk premium currently factored in to crude prices. EIA’s weekly inventory report drove futures down later during the day. The data showed that U.S. crude stockpiles rose 560,000 barrels to 372.2 MMbbl last week, which was below analyst expectations. The lower-than-expected build would normally have supported futures; however, the data also showed that U.S. crude production rose to 7.06 MMbbl/d last week, the highest level since 1992. Gasoline stocks fell 803,000 barrels to 232.2 MMbbl, while distillate stockpiles fell 3.68 MMbbl to 125.9 MMbbl. Refinery utilization fell to 83.8% as the turnaround season continues. Crude futures fell 0.5% to close at $97.01 per barrel.
  5. On Thursday, crude futures rose during Asian trading as United Nations (UN) inspectors were unable to reach an agreement with Iran to gain access to the country’s nuclear facilities. There was no agreed date for another meeting on the issue. Futures fell during London trading as the Economic and Monetary Union of the Eurozone countries reported that the region’s GDP fell by a combined 0.6% in the fourth quarter of 2012. Contraction was also evident in the three largest Eurozone economies—Germany, France, and Italy. Germany posted a 0.6% GDP reduction, France fell 0.3%, and Italy’s GDP declined 0.9%. During New York trading, futures rose as the Department of Labor released its weekly unemployment figures, which showed that 341,000 new jobless claims were filed last week, less than analyst expectations. Gasoline supplies also kept a floor under futures as traders expected refinery turnarounds to draw down current inventories. Crude futures closed for the day at $97.33 per barrel, up 0.3%.

Natural gas prices

U.S. Henry Hub natural gas futures seesawed during the week and closed down 3.7%. Earlier in the week, future edged higher after a blizzard swept into the Northeast and utilities started replacing coal with gas. However, the gains were reversed later, after the EIA reported a lower-than-expected drawdown in inventories.

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

  1. Natural gas futures ended Friday at $3.272 per MMBtu, down 1.3 cents. Futures rose for the first part of the day as a blizzard descended on the Northeast increasing demand for power burn. The National Weather Service (NWS) forecast for the 6–10 day period showed below-average temperatures across most of the country, with only parts of the Northeast and Florida experiencing above-average temperatures. However, futures began falling later in the day as traders grew concerned that gas inventories are still high and that there are not enough days of winter remaining to significantly draw down inventories. Baker Hughes released its rig count report for the week, which showed that gas-directed rigs fell by three to 425.
  2. On Monday, natural gas futures rose during the day as utilities increased natural gas usage for power burn and heating-related demand. The 6–10 day forecast from the NWS showed below-average temperatures persisting across most of the country, with only the East Coast experiencing average temperatures. However, the 8–14 day forecast showed below-average temperatures retreating to the west as average temperatures spread eastward. Nuclear power plant outages were 3,100 MW above average, lending support to the rise in futures.
  3. Natural gas futures ended a seesaw session lower on Tuesday with cold weather conditions in the Northeast limiting the downside. The revised forecast from the NWS showed cold conditions holding in the 6–10 day forecast but warm conditions advancing in the 8–14 day forecast. The Commodity Weather Group’s 6–10 day forecast showed average temperatures across the south, with much of the rest of the country experiencing colder-than-normal temperatures. At current prices, some utilities are beginning to switch from coal to less-expensive gas for power burn, helping to keep a floor under prices.
  4. On Wednesday, natural gas futures ended higher in anticipation of a strong draw on natural gas inventories in EIA’s weekly gas inventory report. Following disappointing draws in previous weeks, traders expected this week’s blizzard conditions in parts of the country to result in a robust weekly draw in the EIA data. However, some traders were concerned that winter may end with gas in storage still near record highs. Natural gas futures ended up 7.6 cents at $3.306 per MMBtu.
  5. On Thursday, Henry Hub natural gas futures ended sharply lower as EIA’s weekly inventory report failed to meet analyst estimates for the third consecutive week. The report showed a draw of just 157 Bcf for the week, below analyst expectations of a larger 162 Bcf draw. However, some traders noted that the draw was above last year’s 113 Bcf draw during the same week and slightly above the five-year average of 154 Bcf. Volumes were very heavy for the day at around 500,000 contracts, one of the highest trading volumes posted this year. Henry Hub natural gas futures ended down 14.3 cents (4.3%) at $3.163 per MMBtu.

Futures curve

October 2013 WTI futures are just 1.6% higher than current prices, reflecting the average cost of carry, limited upside in demand, and adequate supply. However, the October 2013 natural gas futures premium widened to 10.4% due to the recent fall in near-month (March) 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) 14.31 14.43 -0.83%
Gasoline Demand (MMBPD) 8.40 8.41 -0.12%
Distillate Demand (MMBPD) 3.94 3.62 8.84%
Production (MMBPD) 7.06 6.99 1.00%
Imports (MMBPD) 7.51 7.57 -0.79%
Stocks (million barrels) 372.2 371.7 0.13%
Rotary Rig Count 1,330 1,332 -0.15%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,527 2,684 -5.85%
Rotary Rig Count 425 428 -0.70%
Horizontal Rig Count 1,143 1,136 0.62%
Consumption (Bcf)* 2,154 (Nov 12) 1,892 (Oct 12) 13.85%
Gross Withdrawals (Bcf)* 2,506 (Nov 12) 2,569 (Oct 12) -2.45%
Canadian Imports (Bcf)* 219.3 (Nov 12) 242.3 (Oct 12) -9.49%
LNG Imports (Bcf)* 14.2 (Nov 12) 10.4 (Oct 12) 36.54%

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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