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Weekly Oil & Gas Market Highlights: March 13, 2014

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures March 13,
2014
March 6,
2014
% Change
Oil – WTI
(USD per barrel)
$98.20 $101.56 -3.3%
Oil – Western Canadian Select*
(USD per barrel)
$76.30 $79.46 -4.0%
Oil – Brent
(USD per barrel)
$107.39 $108.10 -0.7%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.38 $4.66 -6.0%

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 3% this week due to rising U.S. inventories and a gradual increase in Libyan output. Weak economic data from China also added to the price decline, while concerns about possible U.S. and E.U. sanctions on Russia over the Ukraine issue and positive U.S. employment data extended some support.

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

  1. Last Friday, crude futures rose as President Obama signed an executive order authorizing state officials to impose financial sanctions against Russia over its actions in Ukraine. The European Union (EU) also stopped trade and visa discussions with Russia while threatening the country with economic sanctions. Later in the day, crude futures also received support as the U.S. Department of Labor reported nonfarm payrolls increased by 175,000 in February, which was above analyst expectations. However, U.S. unemployment ticked up slightly, rising from 6.6% to 6.7% as more people entered the workforce. WTI crude futures closed up $1.02 per barrel at $102.58 on the NYMEX.
  2. On Monday, crude futures fell as China reported its exports fell 18% year on year in February, increasing concerns about an economic slowdown in the country.  The decline in China’s exports was the largest drop since the beginning of the global financial crisis five years ago. According to the International Energy Agency (IEA), Chinese demand will account for 11% of global crude demand in 2014, while U.S. demand will be 21% of total crude demand. Prices also fell as Libya reported it had re-started production at a shut-down oilfield over the weekend. The Libyan National Oil Corporation (LNOC) reported oil production in the country was at 275,000 barrels a day, up from earlier lows caused by labor strikes and unrest, but down from the 1.6 MMbbl/d the country produced before the Civil War. WTI crude futures closed down $1.46 at $101.12 per barrel.
  3. On Tuesday, crude futures rose in early trading on concerns about geopolitical tensions between Russia and the West and continued unrest in Libya. Market participants are concerned about possible economic sanctions on Russia by the U.S. and the EU over its intervention in Ukraine. Meanwhile, LNOC announced production rose to 392,000 bbl/d during the day. However, higher production in Western Libya is offset by blockaded export terminals in Eastern Libya where the government navy forces have stopped a North Korean ship containing crude loaded by Libyan separatists. The rebels in the eastern part of Libya have announced they will engage in their own crude exports independent of the central government. Futures reversed course during New York trading as investors grew concerned about a build in crude stockpiles at the U.S. Gulf Coast. The opening of the southern leg of the Keystone XL pipeline is helping to relieve a supply bottleneck at Cushing. However, the supplies being moved from the key pricing hub are facing reduced demand at the Gulf Coast refineries due to the March turnaround season. WTI crude futures for April delivery fell $1.09 to close at $100.03 per barrel.
  4. On Wednesday, crude futures rose briefly as Libyan Prime Minister Ali Zaidan was removed by the Parliament. Islamist groups and other opponents have been seeking his removal for several months. However, LNOC announced an increase in production to 441,000 bbl/d, which moderated the increase in price. Crude futures fell later in the day as the Energy Information Administration (EIA) announced crude stockpiles increased by 6.2 MMbbl/d to 370 MMbbl last week. The rise in stockpiles was driven by a 1.4-percentage-point drop in refinery utilization to 86% of capacity due to the spring turnaround season. Supplies at Cushing fell 1.34 MMbbl to 30.8 MMbbl, a two-year low at the main pricing point. Futures also came under downside pressure as the EIA announced a tender to sell 5 MMbbl of sour crude from the U.S. Strategic Petroleum Reserve (SPR) in order to test the reserve’s capabilities. However, the agency was not releasing the barrels into the market, but only offering them for sale to interested parties. WTI crude futures for April delivery fell $2.04 to close at $97.99 per barrel.
  5. On Thursday, crude futures fell as China’s National Bureau of Statistics reported the country refined 9.79 MMbbl of crude during January–February, down 1% from a year ago. But futures changed course and rose as the U.S. Department of Labor announced new jobless claims fell by 9,000 to 315,000, which was better than analyst expectations. The positive economic outlook for the U.S. received further support as the Department of Commerce released data showing U.S. retail sales rose 0.3% in February, which also beat analyst expectations. WTI crude futures closed for the day at $98.20 per barrel, up $0.21.

Natural gas prices

Henry Hub natural gas futures fell 6% this week largely due to concerns over the end of the heating season, which is expected to limit natural gas demand. The lower-than-expected inventory withdrawal numbers also added to the fall, although the current inventories are at a decade low of 1,001 Bcf.

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

  1. Last Friday, natural gas futures closed down as investors eyed revised weather forecasts calling for milder-than-expected temperatures across most of the country, which will limit demand during the latter half of March. Some traders also noted the heating season will soon be coming to an end, allowing inventories to build up before the summer cooling season begins. Henry Hub natural gas futures closed down 4.4 cents at $4.618 per MMBtu.
  2. On Monday, natural gas futures rose on expectations this week’s natural gas inventory report would show a bullish draw on inventories. Investors currently expect U.S. natural gas inventories to close the heating season below 1 trillion cubic feet (Tcf), which is well below both the year-ago level of 1.7 Tcf and five-year average of around 1.8 Tcf. Last week, natural gas inventories were 1,196 Bcf. Cold weather over the coming week was expected to drive another strong draw on inventory before the onset of spring. Henry Hub natural gas futures closed up 3.3 cents at $4.615 per MMBtu.
  3. On Tuesday, natural gas futures fell as private weather forecasters predicted average temperatures across the Lower 48 states in the 10–14 day forecast. Investors are keeping an eye out for heating demand to deteriorate as spring approaches. Henry Hub natural gas futures closed down 4.6 cents at $4.605 per MMBtu.
  4. On Wednesday, natural gas futures fell sharply as investors grew concerned over the end of the heating season. Although some investors expected this week’s data from the EIA to reflect the last large draw of the heating season from natural gas inventories, many traders believed the draw had already been largely priced in. Henry Hub natural gas futures closed down 11.5 cents at $4.490 per MMBtu.
  5. On Thursday, natural gas futures extended Wednesday’s losses as EIA data showed inventories of natural gas falling less than expected. Inventories fell 195 Bcf to 1,001 Bcf in the largest draw on gas inventories for any week in March since the EIA began keeping records. Despite the large draw, prices weakened because analysts had expected a draw at or above 200 Bcf. Henry Hub natural gas futures closed down 10.7 cents at $4.383 per MMBtu.

Futures curve

The forward curve for WTI crude continues to be in backwardation, with December 2014 WTI futures 5% lower than near-month (April) futures due to rising North American crude supplies. The EIA expects U.S. crude production to average 8.42 MMbbl/d in 2014 — the highest since 1987 — boosted by increased drilling in tight oil plays. Natural gas futures are out of backwardation as the colder-than-normal U.S. winter comes to an end. Near-term (April) prices are 4% lower than the December 2014 futures.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 14.99 15.21 -1.45%
Gasoline Demand (MMBPD) 8.95 8.41 6.42%
Distillate Demand (MMBPD) 3.70 3.55 4.23%
Production (MMBPD) 8.18 8.08 1.24%
Imports (MMBPD) 7.31 7.11 2.81%
Stocks (million barrels) 370.0 363.8 1.70%
Rotary Rig Count 1,443 1,430 0.91%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,001 1,196 -16.30%
Rotary Rig Count 345 335 2.99%
Horizontal Rig Count 1,202 1,181 1.78%
Consumption (Bcf)* 2,912 (Dec 13) 2,305 (Nov 13) 26.32%
Gross Withdrawals (Bcf)* 2,627 (Dec 13) 2,559 (Nov 13) 2.64%
Canadian Imports (Bcf)* 270.1 (Dec 13) 215.9 (Nov 13) 25.11%
LNG Imports (Bcf)* 2.73 (Dec 13) 2.69 (Nov 13) 1.34%

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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Through the Center, Deloitte’s Energy & Resources Group leads the debate on critical topics on the minds of executives–from the impact of legislative and regulatory policy, to operational efficiency, to sustainable and profitable growth. We provide comprehensive solutions through a global network of specialists and thought leaders.

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