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Weekly Oil & Gas Market Highlights: May 29, 2014

Deloitte Center for Energy Solutions publication

Key Oil & Gas price indicators

Front Month Futures May 29,
2014
May 22,
2014
% Change
Oil – WTI
(USD per barrel)
$103.58 $103.74 -0.2%
Oil – Western Canadian Select*
(USD per barrel)
$84.58 $85.84 -1.5%
Oil – Brent
(USD per barrel)
$109.97 $110.36 -0.4%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.56 $4.36 4.6%

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 marginally this week on concerns over rising U.S. crude supplies and speculation that the Ukrainian crisis will not affect Russian crude supplies. Earlier in the week, prices rose due to persisting unrest in Libya and the conflict in Ukraine.

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

  1. Last Friday, crude futures rose as the unrest in Libya continued. Currently, the country is producing around 215,000 barrels a day, which is down nearly 85% from a year ago. Separately, the chairman of Libya's National Oil Corporation resigned without stating a reason for his decision.Crude futures rose ahead of the weekend as Ukraine prepared to hold a crucial vote for president on Sunday. Clashes between government and separatist forces intensified in the eastern part of the country ahead of the election. An attack by pro-Russian insurgents near Volnovakha in eastern Ukraine left government troops with 16 dead, the highest casualty rate for government forces since the onset of fighting. NATO estimates there are currently around 40,000 Russian soldiers on the border with Ukraine. WTI crude futures for July delivery rose $0.61 cents to settle at $104.35 per barrel.
  2. On Monday, markets were closed for the Memorial Day holiday.
  3. On Tuesday, crude futures fell as tensions seemed to ease with the election of billionaire Petro Poroshenko as the president of Ukraine. President-elect Poroshenko said there will be an increase in operations against eastern Ukrainian separatists to re-establish government control over the region. A pro-Russian movement has captured large parts of the Donetsk and Luhansk regions in eastern Ukraine. However, investors speculate that the conflict will not affect crude supplies from the region. Russia is the world's second-largest oil exporter. WTI crude continued the fall through the day as investors speculated that current crude supplies — at highs not seen since 1931 — will be sufficient to meet rising fuel demand in the United States. Supplies rose by 250,000 barrels last week to 391.3 MMbbl. WTI crude for July delivery fell $0.24 to settle at $104.11 per barrel.
  4. On Wednesday, crude futures fell further as investors believed the Ukrainian crisis is currently unlikely to affect the crude flows. Ukraine promised to continue military operations in the eastern part of the country against separatist forces. Government forces regained control of the Donetsk airport without suffering any casualties, while several casualties were reported on the separatist side. Meanwhile in Libya, protestors closed the recently re-opened oil export terminal at Hariga, driving the geo-political premium in crude prices. Petroleum Facilities Guard members joined with federalist rebels to halt crude loadings at the facility to protest against the appointment of Ahmed Maiteg as the prime minister of Libya. However, crude futures reversed the minor gains and fell again during New York trading as investors speculated that this week's inventory data from the Energy Information Administration (EIA) — which was to be released on Thursday this week due to the holiday on Monday — would show another bearish rise in crude supplies in the United States. WTI crude closed down $1.39 at $102.72 per barrel.
  5. On Thursday, crude futures rose as the EIA reported crude stockpiles at Cushing, OK, fell for the 16th time in 17 weeks. News of falling Cushing supplies drove the market. Supplies dropped 1.53 MMbbl to 21.7 MMbbl, the lowest level since November 2008. Analysts believe supplies at Cushing are approaching the minimum levels necessary to maintain operations. Crude inventories at the key pricing point have fallen 41.8 MMbbl since January when the southern leg of the Keystone XL pipeline opened and started moving crude supplies to the Gulf Coast region otherwise known as PADD 3. Crude supplies at PADD 3 are at 213.1 MMbbl, the highest level since the government started keeping monthly records by PADD in 1981 (the government began keeping weekly records in 1990). U.S. refinery utilization rose by 1.2% to 89.9% as more refineries resumed operations after the turnaround season. U.S. crude production rose by 38,000 bbl/d to 8.47 MMbbl/d, the highest level of production since October 1986. Total U.S. crude stockpiles rose 1.66 MMbbl to 393.0 MMbbl, the highest levels since 1931. WTI crude futures closed up $0.86 at $103.58 per barrel.

Natural gas prices

Henry Hub natural gas futures rose 4.6% this week boosted by forecasts of above-average temperatures covering most of the U.S., which is expected to drive cooling demand. Higher-than-average weekly gas injections marginally eased the prices; however, inventories are still 40% lower than the five-year average.

Daily closing price
Note: Intra-day prices (every 6 hours); June month futures expired on May 28, 2014
Data source: Bloomberg

  1. Last Friday, natural gas futures rose, driven by bargain hunting following Thursday's sharp drop in Henry Hub futures prices. Prices fell earlier following a bearish 106 Bcf injection in EIA's weekly data. Weather forecasts for the Memorial Day weekend showed above-average temperatures across most of the country, which was expected to boost cooling demand, while the Gulf region and Pacific Northwest were expected to experience below-average temperatures. Henry Hub natural gas futures closed up 4.6 cents at $4.405 per MMBtu.
  2. On Monday, markets were closed for the Memorial Day holiday.
  3. On Tuesday, natural gas futures rose as private weather forecasters predicted above-average temperatures across most of the U.S. through June 5. The warm temperatures are expected to drive demand for natural gas-derived power demand for air conditioning. Traders remained concerned about the ability to refill the natural gas inventories for the winter demand as the last reported natural gas stockpiles stood at 1,266 Bcf, the lowest level for this time of year since 2003. Henry Hub natural gas futures rose 10 cents to close at $4.505 per MMBtu.
  4. On Wednesday, natural gas futures rose as investors became more bullish over above-average temperatures across much of the United States. Revised forecasts from the National Weather Service showed above-average temperatures covering most of the eastern, central, and western parts of the country. Only Texas was expected to experience below-average temperatures with the trend there continuing into the 8–14 day forecast. Henry Hub natural gas futures for June delivery closed and expired up 11.4 cents at $4.619 per MMBtu. The July contract, which moved into the front-month position, closed up 10.4 cents at $4.615 per MMBtu.
  5. On Thursday, natural gas futures fell as the EIA reported a net injection of 114 Bcf into natural gas storage, which exceeded analyst expectations. The injection compares bearishly with last year's 88 Bcf injection and the five-year average injection of 93 Bcf. Natural gas inventories are now at 1,380 Bcf, a deficit of 35.2% to last year's 2,128 Bcf and a 40.1% deficit to the five-year average level of 2,302 Bcf. Henry Hub natural gas futures for July delivery closed for the day at $4.559 per MMBtu, down 5.6 cents.

Futures curve

The forward curve for WTI crude continues to be in backwardation, with March 2015 WTI futures over 7% lower than near-month (July 2014) futures due to rising North American crude production and stockpiles. The EIA expects U.S. crude production to average 9.24 MMbbl/d in 2015 — the highest since 1972 — boosted by increased drilling in tight oil plays. Near-term (July 2014) natural gas futures are marginally higher than the March 2015 futures as current gas inventory levels are at a decade low.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.85 15.95 -0.63%
Gasoline Demand (MMBPD) 9.31 9.17 1.53%
Distillate Demand (MMBPD) 4.20 3.79 10.82%
Production (MMBPD) 8.47 8.43 0.47%
Imports (MMBPD) 7.81 6.47 20.71%
Stocks (million barrels) 393.0 391.3 0.43%
Rotary Rig Count 1,528 1,531 -0.20%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,380 1,266 9.00%
Rotary Rig Count 325 326 -0.31%
Horizontal Rig Count 1,243 1,248 -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:
* 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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