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Weekly Oil & Gas Market Highlights: May 22, 2014

Deloitte Center for Energy Solutions publication

Key Oil & Gas price indicators

Front Month Futures May 22,
2014
May 15,
2014
% Change
Oil – WTI
(USD per barrel)
$103.74 $101.50 2.2%
Oil – Western Canadian Select*
(USD per barrel)
$85.84 $82.60 3.9%
Oil – Brent
(USD per barrel)
$110.36 $109.09 1.2%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.36 $4.47 -2.5%

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 more than 2% this week boosted by a fall in U.S. crude inventories. Persisting tensions between the West and Russia over the Ukrainian crisis maintained the geopolitical risk premium in crude prices while weak unemployment data from the U.S. softened the prices.

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

  1. Last Friday, crude futures rose as Russia informed Ukraine and the European Union it would stop natural gas deliveries to Ukraine on June 1 unless past payments are received for natural gas deliveries. The Ukrainian government said it is preparing to pay $4 billion to Gazprom, but is trying to negotiate a lower price. Meanwhile, Ukrainian forces continued to fight with separatists in the eastern part of the country, even as the U.S. warned Russia further sanctions could be imposed if the country interferes in the Ukrainian elections later this month. Crude futures also received a boost as U.S. home construction rose to an annualized 13.2% in April, which was better than analyst expectations. Rising home construction was viewed as a bullish indicator for the U.S. economy. WTI crude futures for June delivery closed up $0.52 at $102.02 per barrel.
  2. On Monday, crude futures rose as Germany warned Russia over the weekend additional sanctions would be imposed if the latter interferes in the upcoming Ukrainian elections. Futures were also pushed higher as fighting broke out in Libya over the weekend. Although the military chief of police claimed he had disbanded the Libyan General National Congress, the government denied the news. The Libyan government had reached an agreement with rebel groups in recent weeks to reopen oil export terminals. However, some of the conditions of those agreements are in question. Libya's oil production has fallen to around 0.20 MMbbl/d from over 1.50 MMbbl/d in 2012. Oil futures also rose as the International Energy Agency called for OPEC to boost crude output in the second half of the year in order to cover for supply shortages from Libya and Iran. Analysts estimate OPEC may need to produce an additional 0.60 MMbbl/d to make up for lost production. WTI crude futures for June closed up $0.59 at $102.61 per barrel.
  3. On Tuesday, crude futures eased ahead of the release of this week's crude data from the Energy Information Administration (EIA). Investors are split between those concerned about overall U.S. crude inventories at near-record highs at just under 400 MMbbl and those bullish on low crude stockpiles at Cushing, OK, the key pricing hub for WTI crude and the delivery point for NYMEX crude. Cushing supplies are at 23.2 MMbbl, the lowest level since 2008, the very beginning of the tight oil revolution in North America. However, supplies of commercial crude oil along the Gulf Coast, or PADD 3, are at 209.9 MMbbl, the highest level since the government started keeping records by PADD in 1990. The opening of the southern leg of the Keystone pipeline has helped alleviate a supply bottleneck at Cushing and has left the Gulf Coast awash in crude. WTI crude futures for June delivery closed and expired down $0.17 at $102.44 per barrel. Crude futures for July delivery moved to the front-month position and closed at $102.33 per barrel.
  4. On Wednesday, crude futures were higher during Asian trading as investors went bullish on crude stockpiles in the United States. A report from the American Petroleum Institute, which relies on voluntary data from the energy industry, stated crude stocks had fallen by 10.3 MMbbl last week. The news was taken as indicative of the direction of the official data to be released by the EIA later in the day. In Libya, the nation's election commission set a date for a parliamentary vote next month. The country is trying to find a solution to continued outbreaks of violence between rival military groups and government forces. Major foreign energy producers in the region may leave the country if the unrest continues. Crude futures surged later in the day as the EIA reported a fall of 7.2 MMbbl in U.S. domestic crude stockpiles last week to 391.3 MMbbl, the largest one-week decline in over four months. Part of the decline in crude inventories was due to falling crude imports, currently at a 17-year low of 6.5 MMbbl/d. Large volumes of supply along the Gulf Coast have offset the need to supplement domestic crudes with foreign imports. The fall in crude stockpiles was also viewed as particularly bullish given the end of the refinery turnaround season as refineries restart operations ahead of the summer driving season. WTI crude futures for July delivery closed up $1.74 at $104.07 per barrel.
  5. On Thursday, crude futures traded largely sideways, impacted first by positive economic news from China and later by disappointing jobless figures in the United States. Crude futures rose during Asian trading as HSBC's preliminary Purchasing Manager's Index (PMI) rose to 49.7 in May from 48.1 in April. The data showed China's manufacturing is recovering from a downward trend driven by stronger external demand. China's Communist Party leadership has implemented several measures, such as tax breaks and increased infrastructure spending, in order to boost the domestic economy to meet the 7.5% GDP growth target for 2014. Later in the day, futures reversed course as the U.S. Department of Labor reported new jobless claims rose by 28,000 to 326,000 last week, which was above analyst expectations. Last week's jobless figure was revised up to 298,000 claims. WTI crude futures fell $0.33 to close for the day at $103.74 per barrel.

Natural gas prices

Henry Hub natural gas futures fell 2.5% this week following higher-than-expected injections in natural gas storage. However, concerns about re-filling the supplies before the winter season persist as current inventory levels at 1,266 Bcf are still over 40% lower than the five-year average.

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

  1. Last Friday, natural gas futures fell for the first time in three days as private weather forecasters released data showing average temperatures across the East Coast in the 6–10 day forecast. Forecasts for mild temperatures were expected to limit power demand, which eased concerns about rebuilding natural gas inventories over the summer. Henry Hub natural gas futures for June delivery closed down 5.6 cents at $4.413 per MMBtu.
  2. On Monday, natural gas futures rose as investors grew pessimistic over average-to-rising temperatures across much of the United States. Warmer weather is seen as bullish for natural gas futures since natural gas-derived power demand for cooling is expected to cut into weekly injections, making it less likely inventories will be refilled before the winter heating season arrives. Henry Hub natural gas futures closed up 5.7 cents at $4.47 per MMBtu.
  3. On Tuesday, natural gas futures rose as updated weather forecasts from the National Weather Service showed above-average temperatures across most of the U.S. in the 6–10 day forecast period. Although analysts are expecting a second triple-digit injection to be reported in EIA's natural gas data this week, rising temperatures are expected to keep injections near the five-year average. If injections do not exceed the five-year average, it is unlikely inventories will be adequate for winter demand. Henry Hub natural gas futures closed up 8.2 cents at $4.552 per MMBtu.
  4. On Wednesday, natural gas futures fell as investors booked profits ahead of EIA’s Thursday release of weekly natural gas data. Some investors expect the data may show a larger-than-expected injection, in triple digits, despite concerns about warming temperatures. Henry Hub natural gas futures closed down 7.9 cents at $4.473 per MMBtu.
  5. On Thursday, natural gas futures fell as the EIA released its weekly natural gas data showing a 106 Bcf injection in natural gas inventories last week. The injection compared bearishly with a 90 Bcf injection last year and the five-year average injection of 90 Bcf. Current natural gas inventories are 1,266 Bcf, a deficit of nearly 38% to last year’s level of 2,040 Bcf, and a 43% deficit to the five-year average level of 2,209 Bcf. Henry Hub natural gas futures closed for the day at $4.359 per MMBtu, down 11.4 cents.

Futures curve

The forward curve for WTI crude continues to be in backwardation, with December 2014 WTI futures nearly 5% lower than near-month (July) futures due to rising North American crude production and stockpiles. The EIA expects U.S. crude production to average 8.37 MMbbl/d in 2014 — the highest since 1987 — boosted by increased drilling in tight oil plays. December 2014 natural gas futures are 2.2% higher than the near-term (June) futures on concerns about re-filling the natural gas inventories before the onset of the next winter season. Current working gas in storage is over 40% lower than the five-year average.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.95 15.67 1.79%
Gasoline Demand (MMBPD) 9.17 9.19 -0.22%
Distillate Demand (MMBPD) 3.79 4.27 -11.24%
Production (MMBPD) 8.43 8.43 NC
Imports (MMBPD) 6.47 7.13 -9.26%
Stocks (million barrels) 391.3 398.5 -1.81%
Rotary Rig Count 1,531 1,528 0.20%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,266 1,160 9.14%
Rotary Rig Count 326 323 0.93%
Horizontal Rig Count 1,248 1,243 0.40%
Consumption (Bcf)* 2,757 (Feb 14) 3,216 (Jan 14) -14.27%
Gross Withdrawals (Bcf)* 2,381 (Feb 14) 2,641 (Jan 14) -9.84%
Canadian Imports (Bcf)* 242.9 (Feb 14) 286.6 (Jan 14) -15.24%
LNG Imports (Bcf)* 3.8 (Feb 14) 8.5 (Jan 14) -55.29%

Notes:
NC - No Change
* 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
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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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