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Weekly Oil & Gas Market Highlights: February 7, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) February 7, 2013 January 31, 2012 % Change
Oil – WTI
(USD per barrel)
$95.83 $97.49 -1.7%
Oil – Brent
(USD per barrel)
$117.24 $115.55 1.5%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.29 $3.34 -1.6%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude futures ended the week with a fall of 1.7%, primarily due to less favorable economic news from the U.S., China, and Eurozone. However, news about the reversal of the Longhorn pipeline to the Gulf and positive U.S. inventory data provided partial support.

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

  1. Futures were mixed in Asian trading last Friday. China’s official Purchasing Manager’s Index (PMI) released by the National Bureau of Statistics showed an unexpected decline from 50.6 in December to 50.4 in January. Although the data showed economic expansion in the country, it was slower than expected. Geopolitical tensions in the Middle East helped keep a floor under prices as Syria and Iran continued to condemn the Israeli airstrike on a convoy in Syria last week. Iran also announced that it would upgrade its enrichment capabilities at the Natanz facility, which would enable it to enrich more uranium in less time. Crude futures seesawed as the U.S. Department of Labor released data showing that non-farm payrolls increased by 157,000 last week, less than what analysts had expected. However, both the November and December figures were revised upward, which lent support to crude prices. WTI futures were buoyed by the U.S. PMI figure released by the Institute of Supply Management, which rose to 53.1 in January from 50.2 in December. The figure was above analyst expectations. The Brent/WTI spread increased to over $19 per barrel as it was announced that the Seaway pipeline may continue to face operational restraints until work on a new pipeline section is completed later in the year. The pipeline had been expanded to transport 400,000 bbl/d, but operational issues reduced the flow to just 175,000 bbl/d two weeks ago. WTI futures for March rose $0.26 per barrel during the day to close at $97.77 per barrel.
  2. On Monday, crude futures fell during Asian trading as investors began selling to realize the profits from the recent run-up in prices. The geopolitical risk premium had also eased slightly over the weekend as the six world powers — Britain, China, France, Germany, Russia and the United States — offered to hold a further round of negotiations with Iran next month, although Iran had not yet responded. During New York trading, futures continued the fall as traders began to doubt if there was much additional upside following a month-long rise in commodity prices. The broader equities market also weighed on futures as the Dow Jones Industrial Average fell below 14,000 with the first three-digit decline of the year. In currency markets, the dollar rose against the euro, which added to the bearish news. Futures fell $1.60 per barrel (1.6%), the largest daily decline in a month, to close at $96.17 per barrel.
  3. On Tuesday, crude futures fell as concerns about the European economy began to resurface. Former Italian Prime Minister Silvio Berlusconi pledged that he would end current government austerity plans if elected, which raised concerns about the reaction of the bond market to the news. The health of the Italian banking sector also came into focus as it was reported that Deutsche Bank allegedly helped Italian bank Monte dei Paschi di Siena paper over a 367 million euro derivative loss in 2008. During New York trading, crude received support from news that the Longhorn pipeline from the Gulf to West Texas will be reversed in March and reach a capacity of ~225,000 bbl/d by mid-2013. The pipeline will initially move 75,000 bbl/d to the Gulf around April. The American Petroleum Institute released its weekly crude stocks data, which showed a 3.6 MMbbl rise in crude inventories, while gasoline stocks rose 1.556 MMbbl and distillates fell by 1.449 MMbbl. Crude futures closed at $96.64 per barrel, up 0.5%.
  4. Crude futures received support on Wednesday as Europe’s PMI rose to 48.6 in January from 47.2 in December. A number below 50 indicates contraction, but the figure is the smallest contraction over the past 10 months, which may be indicative of early signs of an economic turnaround for the Eurozone. However, futures fell ~1.3% as the dollar rose versus the euro. Also, prime ministerial candidate Silvio Berlusconi stated that he would cut taxes if elected, which raised concerns in Europe about Italy’s financial stability if he were to win the elections. Crude futures pared earlier losses as the U.S. Energy Information Administration (EIA) released data showing that crude stocks increased by 2.6 MMbbl last week, which was less than analysts’ expectation. The news was viewed as bullish for crude demand during the refinery maintenance season. Gasoline stocks rose 1.7 MMbbl and distillate stocks fell by 1 MMbbl. Oil imports were down 6.2% as refinery utilization fell to 84.2%. Meanwhile, total petroleum demand fell 3.4% to 18.1 MMbbl/d, while gasoline consumption was down 1% to 8.42 MMbbl/d. Crude futures ended down by $0.02 per barrel at $96.62 per barrel.
  5. On Thursday, crude futures fell as Mario Draghi, president of the European Central Bank, raised concerns about the increasing strength of the euro and its effect on the European economy.  The euro has risen 2.5% this year and there are concerns that its rise could reduce exports and stymie inflation targets. Following Draghi’s comments, the euro fell more than 1% during the day. Iran’s Supreme Leader Ayatollah Ali Khamenei put the brakes on talks with the West stating that the negotiations “won’t solve a thing.”  Iranian production has fallen 18% since Western-backed sanctions against the country took effect last July. The country now produces an estimated 2.6 MMbbl/d and is the fifth-largest producer in OPEC. A year ago, it was the second-largest producer after Saudi Arabia. Crude futures saw further downside during New York trading as the Department of Labor announced that the number of Americans applying for jobless benefits fell by just 5,000 last week to a seasonally adjusted 366,000. Analysts had expected to see a larger drop in the number of claims. WTI crude futures for March delivery closed at $95.83 per barrel, up 0.8%.

Natural gas prices

U.S. Henry Hub natural gas futures closed for the week at $3.285 per MMBtu, down 5.4 cents following a steep fall on the last trading session due to weak inventory data. Earlier in the week, futures rose for three consecutive days on account of cooler weather forecasts for the 8-14 day period.

Closing price; December futures expired on November 28.
Note: Intra-day prices (every 6 hours)
Data source: Bloomberg

  1. Last Friday, natural gas futures rose ~7 cents to $3.387 per MMBtu on cold weather in the Northeast. However, forecasts from the National Weather Service (NWS) drove prices down later in the day. The 6–10 day forecast from the NWS showed above-average temperatures covering most parts of eastern U.S., with only California and portions of the Southwest experiencing below-average temperatures. During the day, Baker Hughes data showed that gas-directed rigs were down by 6 to 428. Futures ended a seesaw session closing down 3.8 cents at $3.301 per MMBtu.
  2. On Monday, natural gas futures fell during morning trading as the 6–10 day forecast from the NWS continued to show warm weather in much of the East Coast, raising concerns about reduced heating demand in that part of the country.  However, prices rallied later in the day as traders considered the 8–14 day forecast from the NWS, which showed below-average temperatures blanketing the West and Central regions of the country. Nuclear power plant outages were mixed at 8,500 MW, which was above the five-year average of 7,600 MW, but below the year-ago figure of 10,500 MW. Futures closed at $3.315 per MMBtu, up 1.4 cents.
  3. Natural gas futures rose for a second day on Tuesday as current cold weather in the Northeast and Midwest supported prices. Forecasts from the NWS sent out mixed signals as the 6–10 day forecast showed warmer conditions across much of the country, while the 8–14 day forecast indicated a return of below-average temperatures. Traders expect that the remaining days of winter will support futures, but some note that the current bull run may be running out of steam. Futures rose 8.4 cents to close at $3.399 per MMBtu.
  4. On Wednesday, natural gas futures were largely range-bound ahead of EIA’s release of its weekly natural gas inventory report. Weather forecasts continued to drive investor activity, but provided mixed signals that contributed only to modest movements in the contract price during the day. Cold weather conditions that emerged in the 8–14 day forecast across the Northeast and mid-Atlantic were counter-balanced by warmer weather conditions in the 6–10 day forecast. Futures ended up 1.9 cents at $3.418 per MMBtu.
  5. On Thursday, natural gas futures fell sharply as EIA’s weekly natural gas inventory report proved bearish. The EIA reported that natural gas inventories fell last week by 118 Bcf to 2,684 Bcf, which was below analyst expectations. Current storage levels were down 8% from last year’s highs, but still above the five-year average. Natural gas futures for March delivery closed down 13.3 cents at $3.285 per MMBtu.

Futures curve

October 2013 WTI futures are just 2.1% higher than current prices, reflecting the average cost of carry, limited upside in demand, and adequate supply. However, the October 2013 natural gas futures premium widened to 9.9% due to the recent fall in near-month (March) delivery prices.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 14.31 14.48 -1.17%
Gasoline Demand (MMBPD) 8.41 8.50 -1.06%
Distillate Demand (MMBPD) 3.62 3.72 -2.69%
Production (MMBPD) 6.99 6.99 0.00%
Imports (MMBPD) 7.57 8.07 -6.20%
Stocks (million barrels) 371.7 369.1 0.70%
Rotary Rig Count 1,332 1,315 1.29%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,684 2,802 -4.21%
Rotary Rig Count 428 434 -1.38%
Horizontal Rig Count 1,136 1,127 0.80%
Consumption (Bcf)* 2,154 (Nov 12) 1,892 (Oct 12) 13.85%
Gross Withdrawals (Bcf)* 2,506 (Nov 12) 2,569 (Oct 12) -2.45%
Canadian Imports (Bcf)* 219.3 (Nov 12) 242.3 (Oct 12) -9.49%
LNG Imports (Bcf)* 14.2 (Nov 12) 10.4 (Oct 12) 36.54%

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)

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