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Weekly Oil & Gas Market Highlights: January 30, 2014

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures January 30,
2014
January 23,
2014
% Change
Oil – WTI
(USD per barrel)
$98.23 $97.32 0.9%
Oil – Western Canadian Select*
(USD per barrel)
$78.98 $79.07 -0.1%
Oil – Brent
(USD per barrel)
$107.95 $107.58 0.3%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$5.01 $4.73 5.9%

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 rose nearly 1% this week on expectations of a reduction in crude stockpiles at Cushing with the start of Keystone XL pipeline’s southern leg. Prices had fallen earlier in the week due to concerns over further tapering of Fed’s bond-buying program; however, positive U.S. economic data supported prices later in the week.

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

  1. Last Friday, crude futures fell as investors grew concerned over slowing demand growth in emerging economies. Driving the concerns were earlier reports that the manufacturing sector in China, the world’s second-largest oil consumer, fell to a six-month low in January. In the broader market, the MSCI Emerging Markets Index fell 1.4% and the dollar strengthened against developing market currencies, which is bearish for dollar-denominated crude. WTI crude futures closed down $0.68 at $96.64 per barrel.
  2. On Monday, crude futures rose in early trading on expectations of higher heating oil demand due to the current cold weather across the U.S. and release of excess crude stocks at Cushing, Oklahoma, following the start of Keystone XL pipeline’s southern leg. The pipeline will deliver an estimated 520,000 bbl/d to Gulf Coast refineries in 2014. However, crude futures fell later in the day ahead of a two-day meeting of the Federal Reserve’s Open Market Committee. Investors were concerned that further reduction of the Fed’s $75 billion per month bond-buying program would weigh on dollar-denominated crude prices. Crude also fell as the Department of Commerce reported new U.S. home sales fell 7% to an annualized 414,000 in December, which was below analyst expectations. WTI crude futures closed down $0.92 cents at $95.72 per barrel.
  3. On Tuesday, crude futures rose as investors speculated this week’s petroleum data released by the Energy Information Administration (EIA) would show a drawdown in crude stocks at Cushing due to the increased pipeline capacity to Gulf Coast. Last week’s EIA data showed crude inventories of 41.6 MMbbl at Cushing. Market participants continued to monitor the two-day meeting of the Fed for an update on its bond-buying program. WTI crude futures closed up $1.69 at $97.41 per barrel.
  4. On Wednesday, crude futures rose as the EIA released its weekly petroleum report. Traders saw bullish demand for petroleum products, particularly heating oil and gasoline, which helped boost crude prices. Gasoline supplies fell by 800,000 barrels while distillates fell by 4.6 MMbbl, according to the data. However, overall stocks of crude rose by 6.4 MMbbl to 357.6 MMbbl while stocks at Cushing, OK, rose by 200,000 barrels to 41.8 MMbbl. Crude prices dipped later in the day, erasing all the earlier gains as the Federal Reserve announced it would again trim its bond-buying program by $10 billion to $65 billion per month. A reduction in the bond-buying program is bearish for commodity prices. WTI crude futures closed down $0.05 at $97.36 a barrel.
  5. On Thursday, crude futures rose to the highest level in four weeks as the Department of Commerce announced the U.S. economy grew at an annualized 3.2% in the fourth quarter of 2013. For 2013, the U.S. economy grew at 1.9%, down from 2.8% in 2012. Crude futures also received a boost as distillate demand surged nearly 20%, reaching the highest level in six years, due to current cold weather conditions. January 2014 is currently on track to be the coldest month of the 21st century thus far. WTI crude futures closed for the day at $98.23 per barrel, up $0.87.

Natural gas prices

Henry Hub natural gas futures rose around 6% this week boosted by persisting below-average temperatures in the United States. Prices crossed the $5 mark and reached an intra-day high on Wednesday of $5.725 per MMBtu, the highest level in four years. However, futures softened later in the week as forecasts signaled the end of the extended winter season.

Daily closing price
Note: Intra-day prices (every 6 hours); the February futures contract expired on January 29, 2014
Data source: Bloomberg

  1. Last Friday, natural gas futures rose as the National Weather Service (NWS) reported below-average temperatures across the eastern half of the country in its 6–10 day forecast. Natural gas futures rose above $5 per MMBtu for the first time in over three years due to strong heating demand. Prices have risen over 40% since the beginning of the winter heating season in November. Henry Hub natural gas futures closed up 45.2 cents at $5.182 per MMBtu.
  2. On Monday, natural gas futures rose in early trading, banking on the extended winter weather in the U.S. Near-month futures rose to an intra-day high of $5.442 per MMBtu; however, prices fell nearly 6.5% later in the day as investors booked profits following strong gains since Friday morning. The decline was the sharpest fall in eight months. Nuclear power plant outages of 2,600 MW compared bearishly with 4,400 MW out a year ago and the five-year average outage of 5,800 MW. Henry Hub natural gas futures closed down 33.5 cents at $4.847 per MMBtu.
  3. On Tuesday, natural gas futures rose as private weather forecasters predicted below-average temperatures across the entire country except Florida in their 6–10 day forecast. Some traders also believed the market had been oversold on Monday and bought into the fall in prices. Henry Hub natural gas futures rose 18.6 cents to close at $5.033 per MMBtu.
  4. On Wednesday, U.S. natural gas futures surged on expectations of strong demand due to current cold conditions across much of the country. Futures hit an intra-day high of $5.725, the highest price in four years. The February contract closed up 52.4 cents and expired at $5.557 per MMBtu, marking a 20% rise during January, the highest one-month gain since September 2009. The March contract moved into the front-month position and closed at $5.465 per MMBtu.
  5. On Thursday, natural gas futures for March delivery fell as private weather forecasters revised earlier forecasts to reflect an easing of cold conditions across much of the country in the 6–10 day forecast. Natural gas futures fell over 8% due to the revised forecasts, the largest drop in four years. Henry Hub natural gas futures for March delivery fell 45.4 cents to close at $5.011 per MMBtu.

Futures curve

The forward curve for WTI crude is in backwardation, with September 2014 WTI futures 5% lower than near-month (March) futures due to rising North American crude supplies. The EIA expects U.S. crude production to average 8.54 MMbbl/d in 2014 — the highest since 1986 — boosted by increased drilling in tight oil plays. While the extended winter drove the near-term (March) natural gas prices higher, the expectation of growing U.S. 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) 15.42 15.22 1.31%
Gasoline Demand (MMBPD) 8.58 8.06 6.45%
Distillate Demand (MMBPD) 4.52 3.78 19.58%
Production (MMBPD) 8.04 8.05 -0.12%
Imports (MMBPD) 8.05 7.54 6.76%
Stocks (million barrels) 357.6 351.2 1.82%
Rotary Rig Count 1,416 1,408 0.57%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,193 2,423 -9.49%
Rotary Rig Count 356 365 -2.47%
Horizontal Rig Count 1,170 1,173 -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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About the Deloitte Center for Energy Solutions
The Deloitte Center for Energy Solutions provides a forum for innovation, thought leadership, groundbreaking research and industry collaboration to help companies solve the most complex energy challenges.

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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