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Weekly Oil & Gas Market Highlights: May 23, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures May 23, 2013 May 16, 2012 % Change
Oil – WTI
(USD per barrel)
$94.25 $95.16 -1.0%
Oil – Western Canadian Select*
(USD per barrel)
$74.35 $74.70 -0.5%
Oil – Brent
(USD per barrel)
$102.44 $103.80 -1.3%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$4.26 $3.93 8.4%

Data sources: Bloomberg; CME Group
* Western Canadian Select 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 closed down 1% this week due to bearish economic data from China, the Fed’s stated plan to slow down its bond buying program, and weaker-than-expected inventory data. Prices rose earlier in the week on positive economic news from Japan and Europe and demand expectations for the upcoming summer driving season in the U.S.

Closing price
Note: Intra-day prices (every 6 hours); June month futures expired on May 21, 2013.
Data source: Bloomberg

  1. Last Friday, crude futures rose during Asian trading as Japan reported annualized gross domestic product (GDP) growth of 3.5% in the first quarter. Japanese Prime Minister Shinzo Abe also gave a speech outlining a plan for the nation’s economic growth, increasing speculation that the Japanese economy may be entering a pro-growth environment that will be bullish for crude demand. During European trading, futures rose as the European Automobile Manufacturer’s Association reported that automobile sales were up in the European Union as new registrations rose 1.8% in April to 1.08 million cars. Adding further positive economic news, oil futures rallied during New York trading as the Conference Board released data showing that its index of leading U.S. economic indicators rose 0.6% in April from a decline of 0.2% in March, well above analyst expectations. The news sent the S&P 500 Index rallying during the day, which pulled crude futures up with the broader market. Crude futures for June delivery rose $0.86 to close at $96.02 per barrel.
  2. On Monday, crude futures fell during thin trading in Asia as investors sat on the sidelines ahead of a meeting by the Federal Reserve later this week and due to profit-taking after a three-day rally in crude futures. In the Middle East, Syrian security forces began an offensive against rebels and reclaimed the city of Al-Qusair. The news raised the geopolitical premium factored into the futures as investors became more concerned that the conflict could destabilize the region. During New York trading, futures rose to a seven-week high as traders grew optimistic about the crude demand outlook for the summer driving season, which will officially begin this Memorial Day weekend. Traders were also optimistic that Energy Information Administration (EIA)’s weekly oil stocks report will provide bullish signals and that the Fed will maintain its current bond buying program. Crude futures for June delivery closed up $0.69 at $96.71 per barrel.
  3. Tuesday trading saw crude futures fall as the dollar advanced against a basket of currencies. The rising dollar negatively impacted the prices of all dollar-denominated commodity prices, including crude oil. The American Petroleum Institute released its weekly oil stocks report, which showed U.S. oil inventories rising 532,000 barrels to 390.7 MMbbl. The market fell nearly 1% following the news. Some traders were concerned that even if the closely monitored oil stocks report from the EIA showed a bullish draw, current supplies would be sufficient for the market, limiting the upside. Crude futures for June delivery fell $0.55 and expired at $96.16 per barrel. The July contract, which moved into the front-month position, fell $0.75 to close at $96.18 per barrel.
  4. On Wednesday, crude futures continued the falling trend during Asian trading, driven by a stronger dollar and caution ahead of Federal Reserve Chairman Ben Bernanke’s testimony before Congress later in the day. China’s crude oil inventories rose 0.1% in April to 28.7 million metric tons, a three-month high, providing a slight bearish signal to the market. Futures fell later in the day as the EIA released its weekly oil stocks data showing a modest draw of 338,000 bbl to 394.6 MMbbl, well below analyst expectations. Traders were also concerned that gasoline stockpiles rose by 3.02 MMbbl to 220.7 MMbbl while gasoline demand at 8.5 MMbbl/d was the lowest four-week average demand in 10 years. The news provided a bearish outlook for the onset of the summer driving season. Oil futures came under additional downward pressure as Fed Chairman Bernanke stated in his testimony that the bank is looking at reducing its monthly purchases of bonds from the current level of $85 billion. The bond purchases, known as quantitative easing, have been bullish for dollar-denominated crude. Crude futures fell $1.90 to close at $94.28 per barrel.
  5. On Thursday, oil fell during Asian trading as HSBC and Markit Economics released data showing that China’s Purchasing Manager’s Index fell to 49.6 from 50.4 in April. A number below 50 indicates contraction. The number was particularly bearish for oil markets since China accounts for half the estimated global growth in oil demand. The news also sent the broader markets down, with Japan’s Nikkei index falling 7.3% and the S&P 500 Index falling nearly 1%. Crude futures later fell to a low of $92.21 per barrel on concerns about a slowdown in the Fed’s bond buying program. A slowdown and eventual termination of the program is expected to strengthen the dollar, which is bearish for crude. However, futures rose later in the day due to expectations for higher demand over the approaching holiday weekend. Crude futures closed down $0.03 at $94.25 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures rose sharply this week, primarily driven by news about the approval of the Freeport LNG exports project. Expectations for a shortened shoulder season due to extended winter and early onset of warm temperatures also favored rising prices.

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

  1. Last Friday, Henry Hub natural gas futures closed up, driven by bargain hunting following Thursday’s selloff caused by a bearish 99 Bcf injection in the weekly gas inventory report from the EIA. Weather forecasts from the National Weather Service (NWS) were neutral, but traders saw an upside in the Department of Energy’s approval of natural gas exports of 1.4 Bcf/d to non-Free Trade Agreement countries for Freeport LNG project. Baker Hughes reported that the natural gas-directed rig count rose by 4 to 354 rigs last week. Natural gas futures closed up 12.3 cents at $4.055 per MMBtu.
  2. On Monday, natural gas futures rose, driven by revised weather forecasts from the NWS that showed above-average temperatures advancing across much of the country. The NWS’s 6–10 day forecast indicated warmer-than-normal temperatures across most of the country, from Texas to the Northeast, which means higher energy consumption for cooling. The 8–14 day forecast showed a similar trend, with the Northwest also expected to experience above-average temperatures. Natural gas futures closed up 3.5 cents at $4.090 per MMBtu.
  3. Natural gas futures rose on Tuesday, driven by forecasts of warmer weather. With warm temperatures set to follow a late-season cold snap that extended the winter heating season several weeks beyond the average, investors are looking to a shortened shoulder season that is expected to be bullish for natural gas demand. Natural gas futures closed up 10.2 cents at $4.192 per MMBtu.
  4. On Wednesday, Henry Hub natural gas futures closed nearly unchanged as momentum from the approval of the Freeport LNG exports began to run out of steam. Revised forecasts from the NWS also showed a moderation of the warming trend over the Memorial Day weekend. Henry Hub natural gas futures closed down 0.6 cents at $4.186 per MMBtu.
  5. On Thursday, natural gas futures rose following the release of EIA’s weekly gas inventory report. Working gas in storage rose by 89 Bcf to 2,053 Bcf, just below analyst expectations. Most analysts viewed the build as neutral even though it was the first build that trailed analyst expectations in over a month. Gas inventories still remain below the year-ago and five-year averages. Natural gas futures closed up 7.5 cents at $4.261 per MMBtu.

Futures curve

February 2014 WTI futures are 2.3% lower than current prices due to growing North American supply and weak demand growth in major economies globally. However, January 2014 natural gas futures are at a premium of 8.2% to near-month (June) futures due to moderating supply growth, expectations of winter demand, and increased demand from commercial and residential sectors.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.25 15.25 0.00%
Gasoline Demand (MMBPD) 8.79 8.34 5.40%
Distillate Demand (MMBPD) 4.22 3.57 18.21%
Production (MMBPD) 7.26 7.32 -0.82%
Imports (MMBPD) 8.13 7.62 6.69%
Stocks (million barrels) 394.6 394.9 -0.08%
Rotary Rig Count 1,408 1,412 -0.28%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,053 1,964 4.53%
Rotary Rig Count 354 350 1.14%
Horizontal Rig Count 1,096 1,099 -0.27%
Consumption (Bcf)* 2,557 (Feb 13) 2,863 (Jan 13) -10.69%
Gross Withdrawals (Bcf)* 2,320 (Feb 13) 2,542 (Jan 13) -8.73%
Canadian Imports (Bcf)* 228.8 (Feb 13) 262.9 (Jan 13) -12.97%
LNG Imports (Bcf)* 11.4 (Feb 13) 13.5 (Jan 13) -15.56%

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

Learn more

Deloitte’s paper, Oil & Gas Mergers and Acquisitions Report – Year-end 2012: Stable oil prices support a healthy deal market covers deals from the past 12 months by sector and reveals the insights of Deloitte merger & acquisition (M&A) specialists on what is driving activity and what this says about how the business is changing, as the oil and gas industry continued to demonstrate strong M&A activity in 2012.

Deloitte's paper Exporting the American Renaissance: Global impacts of LNG exports from the United States describes an objective, economic-based analysis of the potential impact of LNG exports from the United States on domestic and global markets. While much attention has focused on the impact of U.S. LNG exports on the U.S. market, this study from Deloitte MarketPoint LLC and the Deloitte Center for Energy Solutions analyzes the potential economic consequences of those exports on global markets. It attempts to estimate the potential price impacts, gas supply changes, and flow displacements if the U.S. exported a given volume of LNG to either Asia or Europe.

Deloitte's paper Energy Independence and Security: A Reality Check, discusses the realities of U.S. energy independence and energy security — and whether these are realistic and achievable goals. Understanding how to reach energy independence and security requires us to know more about our sources and uses of energy — and the realities of energy supply and demand.

Deloitte MarketPoint LLC can help Energy & Resources companies with their most strategic business decisions. Deloitte MarketPoint's analytic suite, called MarketBuilder, is a data analytics solution that helps clients understand future markets and prices for most energy commodities, including oil, gas, refinery products, electricity, emissions, and coal, at each point in the value chain. For more information on how Deloitte MarketPoint can help you make more strategic decisions, please visit www.deloittemarketpoint.com or email deloittemarketpoint@deloitte.com.

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November 19, 2013
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