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Weekly Oil & Gas Market Highlights: September 5, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures September 05, 2013 August 22, 2013 % Change
Oil – WTI
(USD per barrel)
$108.37 $105.03 3.2%
Oil – Western Canadian Select*
(USD per barrel)
$82.88 $80.78 2.6%
Oil – Brent
(USD per barrel)
$115.26 $109.90 4.9%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.58 $3.55 0.8%

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 spiked last week due to rising tensions in the Middle East and a possible U.S. attack on Syria. However, prices softened this week as the U.S. curtailed the scope of its military actions against the Assad regime. Futures ended 3.2% higher, supported by geopolitical tensions and a positive U.S. inventory report.

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

  1. On Friday, August 23, oil futures rose as two explosions killed 29 people in northern Lebanon, increasing investor concerns about rising instability in the Middle East. Although Lebanon is not a player in the oil market and produces no oil, traders are concerned about the growing instability in neighboring Syria—which occupied Lebanon for 30 years—and its potential to spill over into the rest of the region. Later in the day, futures rose as the U.S. Department of Commerce reported sales of new homes fell 13.4% in July, the largest decline since May 2010. The poor performance of the housing market increased speculation the Fed's bond buying program may not end as soon as anticipated, which is bullish for crude futures. WTI futures for October delivery were up $1.39 per barrel to close at $106.42 a barrel on the NYMEX
  2. On Monday, crude futures fell as Libya announced it has restarted exports from the port of Brega after declaring force majeure on August 18 due to a labor strike. Deputy Oil Minister Omar Shakmak said Libya's oil production averaged 0.64 MMbbl/d in August. World leaders denounced the apparent use of chemical weapons in Syria's ongoing civil war and called for United Nations inspectors to investigate the allegations. During New York trading, prices fell as the Department of Commerce reported orders for durable goods fell 7.3% in August. The decline was steeper than analyst expectations. WTI futures fell $0.50 per barrel to close at $105.92 a barrel.
  3. On Tuesday, crude futures rose as U.S. Secretary of State John Kerry said the U.S. would hold Bashar Assad's regime accountable for the "indiscriminate slaughter" of civilians with the use of chemical weapons in Syria. Although President Obama did not indicate whether the U.S. was planning military action against Syria, he had mentioned in an interview last August that the use of chemical weapons would be a "red line" that would trigger a U.S. response. U.S. Defense Secretary Chuck Hagel said the U.S. is ready if a military strike was ordered. In the UK, Foreign Secretary William Hague said the British government was convinced Assad's regime was behind the chemical attack. Iran's Foreign Ministry, meanwhile, warned a U.S. attack on Syria would lead to a wider regional conflict. Crude futures spiked nearly 2.5% on the news. In Libya, oil production fell amid continued protests at oil fields. Production at the El Feel, or Elephant, oil field was halted completely. Libya's national oil company reported production may have fallen as low as 200,000 bbl/d due to the protests. WTI crude futures for October delivery rose $3.09 per barrel to $109.01 on the NYMEX.
  4. On Wednesday, crude futures rose sharply to a two-year high as traders grew concerned an impending showdown between the U.S. and Syria over the alleged use of chemical weapons would lead to a wider regional conflict. Meanwhile, Société Générale SA released a report that Brent could briefly spike to $150 per barrel if the conflict in Syria spills beyond its borders.Officials in the U.S. and Britain stated any military response would focus on degrading Syria's weapons capabilities and would not attempt to depose Assad from power. The members of the United Nations Security Council (UNSC) began considering a resolution condemning the use of chemical weapons. Later during the day, futures eased as the Energy Information Administration (EIA) reported U.S. crude stockpiles increased 2.99 MMbbl to 362 MMbbl. U.S. crude production rose 1.2% last week to 7.61 MMbbl/d, the highest level of production since 1989. WTI futures rose $1.09 per barrel to $110.10 on the NYMEX.
  5. On Thursday, crude futures fell nearly 1.5% as the UK and France indicated they would await the outcome of a United Nations investigation into the alleged use of chemical weapons in Syria before they would join in any military action against Syria. The U.S. worked to put together conclusive evidence to prove it was Assad's regime that used chemical weapons, while Secretary of Defense Chuck Hagel said the U.S. would not act without the support of its allies. During New York trading, the U.S. Department of Commerce reported the U.S. economy expanded at a revised annualized 2.5% in the second quarter, up from the earlier estimate of 1.7%. The Department of Labor also reported new claims for unemployment benefits fell by 6,000 to 331,000, slightly better than analyst expectations. Crude futures fell following the positive economic data as investors grew concerned the Fed may begin to taper off its bond buying program. WTI fell $1.30 to settle at $108.80 a barrel.
  6. Last Friday, crude futures fell nearly 2% as the UK House of Commons rejected Prime Minister David Cameron's proposal for a military response to the alleged use of chemical weapons in Syria. The move, by America's closest military ally, indicated any potential military action against Syria is not imminent. The news was a blow to the Obama administration's efforts to rally international support for military action in Syria. However, French President Francois Hollande indicated France was supportive of a targeted strike on Syria even if the UNSC did not agree. Separately, the International Energy Agency released a statement saying it is ready to respond if there is a major disruption in world oil supplies, but that the immediate release of supplies is not required. WTI futures fell $1.15 to $107.65 per barrel on the NYMEX.
  7. On Monday, the NYMEX trading floor was closed for the Labor Day holiday.
  8. On Tuesday, crude futures rose as Israel tested its missile defense system by launching two missiles that landed in the Mediterranean Sea. Israel said it would release further details of the launch later, but the move was viewed as a signal to Iran, Syria's main ally in the region. In the U.S., President Obama began lobbying for Congressional support for an attack on Syria as leading Senate hawks John McCain and Lindsey Graham insisted on military actions against Syria. In an attempt to rally the House of Representatives, House Speaker John Boehner stated he would support the president's call for military force against Syria, while most of the Republicans in Congress remained opposed to the measure. The speaker's announcement was, however, supported by House Minority Leader Nancy Pelosi and Republican Majority Leader Eric Cantor. In Libya, Deputy Oil Minister Shakmak stated the country is exporting a "nominal quantity" of crude from the Brega and Mellitah terminals, without specifying the exact amount. WTI rose $0.89 cents to settle at $108.54 a barrel.
  9. On Wednesday, crude futures fell 1.2% as the U.S. appeared to curtail the scope of its intended military action in Syria. The Senate Foreign Relations Committee passed a resolution authorizing the "tailored" use of force against Syria, which was widely viewed as the beginning of a more limited U.S. response to Syria's alleged use of chemical weapons. The resolution permits the use of force during a 60-day period following enactment with a 30-day extension if the president requests it. The use of ground forces was not authorized in the resolution. In Russia, Syria's long-time ally, President Vladimir Putin said the U.S. has no grounds to intervene in Syria because the approval of such action is the responsibility of the UNSC. Futures also fell on rising speculation the Fed will begin scaling back its $85 billion per month bond buying program. The Fed will hold its next policy meeting during September 17-18 to discuss the possibility. WTI fell $1.31 to settle at $107.23 a barrel.
  10. On Thursday, crude futures rose as the Senate Foreign Relations Committee resolution authorizing a limited use of force made its way to consideration by the full Senate. On September 9, U.S. lawmakers are scheduled to consider the measure. Crude futures rose further as the EIA released its weekly oil stocks report which reported crude stockpiles fell by 1.84 MMbbl to 360.2 MMbbl last week. The decline was sharper than analyst expectations. WTI crude futures closed for the day at $108.37 per barrel, up $1.14.

Natural gas prices

U.S. Henry Hub natural gas futures rose over the past two weeks, supported by expectations of late-season warmth across most of the U.S. However, prices fell sharply on Thursday September 5th, erasing most of the week’s gains as the EIA reported a higher-than-expected inventory build.

Closing price
Note: Intra-day prices (every 6 hours); The September futures contract expired on August 28, 2013.
Data source: Bloomberg

  1. On Friday, August 23, U.S. natural gas futures closed down as traders booked profits from gains earlier in the week, which were driven by a bullish 57 Bcf build in inventories reported the day before by the EIA. Warm temperature predictions from the National Weather Service (NWS) failed to provide support as some traders noted current inventories at 3,063 Bcf were 1.5% above average and analysts expected inventories to peak at over 3,850 Bcf this year. Henry Hub natural gas futures closed down 6 cents at $3.485 per MMBtu.
  2. On Monday, natural gas futures rose as revised forecasts from the NWS called for above-average temperatures across much of the nation in the 6−10 day forecast, with only small parts of the West experiencing average-to-below-average temperatures. However, traders expect cooler weather to settle across the country as fall approaches. The National Hurricane Center (NHC) downgraded Tropical Storm Fernand off the coast of Mexico to a tropical depression. Natural gas futures closed up 2.8 cents at $3.513 per MMBtu.
  3. On Tuesday, natural gas futures rose modestly during the day driven by expectations for increased warming in both the 6–10 day and 8–14 day forecasts from the NWS. With the September natural gas contract expiring on Wednesday, traders bid up the price to cover outstanding shorts. Natural gas futures closed up 2.1 cents at $3.534 per MMBtu.
  4. On Wednesday, natural gas futures fell early in the day as bears rallied on expectations that recent warm temperatures will soon end, driven by predictions from the Climate Prediction Center. Private weather forecaster, Commodity Weather Group, also projected below-average temperatures in the next 6–15 days. However, natural gas futures for September delivery rose 3.3 cents to close at $3.567 per MMBtu due to last-minute position squaring. October futures contract moved to the near-month position and closed at $3.582 per MMBtu.
  5. On Thursday, natural gas futures ended a seesaw session up as the EIA released its weekly natural gas inventory report, which showed an increase of 67 Bcf last week. The inventory build is slightly above analyst expectations and the 64 Bcf build a year ago; however, the injection was in line with the five-year average build of 66 Bcf. Natural gas futures for October delivery closed up 3.6 cents at $3.618 per MMBtu.
  6. Last Friday, natural gas futures closed down in the first loss of the week as traders booked profits ahead of the holiday weekend. Looking at tropical storm activity, the NHC tracked two storms in the Atlantic, but neither was expected to threaten production in the Gulf of Mexico. Baker Hughes reported gas-directed rigs fell by 7 to 380 active rigs. Natural gas futures closed down 3.7 cents at $3.581 per MMBtu.
  7. On Monday, the NYMEX trading floor was closed for the Labor Day holiday.
  8. On Tuesday, natural gas futures rose, driven by NWS forecasts for above-average temperatures across most of the United States. Only the East Coast was expected to experience average-to-below-average temperatures. The NHC increased the number of storms it was tracking to three in the Atlantic, but none were expected to affect natural gas production in the Gulf of Mexico. Natural gas futures closed up 8.5 cents at $3.666 per MMBtu on the NYMEX.
  9. On Wednesday, natural gas futures rose to a five-week high as traders were bullish that lingering late-season warmth would help spur natural gas demand. Bulls also found support in predictions from the NHC that a low-pressure system off the southern coast of Puerto Rico had a 50% chance of developing into a tropical storm in the next 48 hours. Natural gas futures rose 1.7 cents to $3.683 per MMBtu.
  10. On Thursday, natural gas futures fell over 2.5% as the EIA reported working gas in storage rose by 58 Bcf, which was above analyst expectations. However, the build was below the five-year average build of 60 Bcf. Current gas in storage stands at 3,188 Bcf. Natural gas futures closed for the day at $3.575 per MMBtu, down 10.8 cents.

Futures curve

The forward curve for WTI crude is in backwardation, with June 2014 WTI futures 9% lower than near-month (October) futures due to growing North American supply and concerns over slowing global economic growth. However, June 2014 natural gas futures are at a premium of 8.3% over October 2013 futures due to expectations of moderate supply growth and higher demand from commercial and residential sectors in 2013.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.94 15.85 0.57%
Gasoline Demand (MMBPD) 9.09 9.20 -1.20%
Distillate Demand (MMBPD) 3.80 3.61 5.26%
Production (MMBPD) 7.62 7.52 1.33%
Imports (MMBPD) 8.3 7.95 4.40%
Stocks (million barrels) 360.2 359.1 0.31%
Rotary Rig Count 1,388 1,397 -0.64%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,188 3,063 4.08%
Rotary Rig Count 380 388 -2.06%
Horizontal Rig Count 1,078 1,077 0.09%
Consumption (Bcf)* 1,726 (Jun 13) 1,740 (May 13) -0.80%
Gross Withdrawals (Bcf)* 2,443 (Jun 13) 2,540 (May 13) -3.82%
Canadian Imports (Bcf)* 228.9 (Jun 13) 229.0 (May 13) -0.04%
LNG Imports (Bcf)* 8.1 (Jun 13) 5.6 (May 13) 44.64%

* 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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