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Weekly Oil & Gas Market Highlights: March 6, 2014

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures March 6,
2014
February 27,
2014
% Change
Oil – WTI
(USD per barrel)
$101.56 $102.40 -0.8%
Oil – Western Canadian Select*
(USD per barrel)
$79.46 $77.40 2.7%
Oil – Brent
(USD per barrel)
$108.10 $108.96 -0.8%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.66 $4.51 3.3%

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 sharply early this week triggered by geopolitical tensions in Ukraine and falling stockpiles at Cushing. However, prices declined later in the week and settled nearly 1% lower as Russia softened its stance on Ukraine and the U.S. reported higher-than-expected increase in oil stocks.

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

  1. Last Friday, crude futures slipped earlier in the day as a slide in the Chinese yuan prompted concerns over demand growth in the second-largest oil-consuming nation. The Chinese currency fell 0.86% — the biggest intra-day fall on record — to 6.1808 against the dollar, before ending the day at 6.1450 per dollar. Futures continued the fall during New York trading after the U.S. Commerce Department revised its estimate for fourth quarter GDP growth to a 2.4% annual rate, down 0.80 percentage points from the previous estimate. The revision was primarily attributed to lower-than-expected growth in consumer spending and reduced government spending. However, futures changed course later in the day, erasing earlier losses as traders reacted to the decline in Cushing stockpiles to 34.8 MMbbl — the lowest since October 2013. The Keystone XL pipeline currently ships at a rate of 288,000 bbl/d and TransCanada, the operator of the pipeline, plans to ramp up the capacity to reach 700,000 bbl/d by the end of the year. WTI crude futures for April delivery gained $0.19 to close at $102.59 per barrel.
  2. On Monday, WTI rose to a five-month high following the news that Russia seized control of the Black Sea region of Crimea, Ukraine. The geopolitical premium on crude prices spiked on speculation about possible U.S. sanctions on Russia as a result of the Ukraine standoff. Further, Ukraine is key for Russian crude exports of over 1.2 MMbbl/d to Europe — the 300,000 bbl/d southern branch of the Druzhba pipeline carries Russian crude through Ukraine to reach refineries in Hungary, Slovakia, and the Czech Republic. Russia also exports nearly 320,000 bbl/d from the Yuzhny terminal in the Black Sea, which is close to Odessa, Ukraine. WTI crude rose $2.33 to close at $104.92 per barrel.
  3. On Tuesday, crude prices tumbled more than 1% after Russian President Vladimir Putin stated that there is no immediate need to invade Ukraine and the troops stationed in Crimea were only securing Russia’s bases in the region. The southern branch of the Druzhba pipeline continued to run at planned rates without any interruption. Futures continued to fall during New York trading on a Bloomberg survey showing a 1.3 MMbbl increase in U.S. crude inventories for the week ending February 28. Supplies in the U.S. stand at 362.4 MMbbl, the highest level in two months. WTI crude futures fell $1.59, closing at $103.33 per barrel.
  4. On Wednesday, WTI prices fell nearly 2%, the sharpest daily drop in two months, after the U.S. Energy Information Administration (EIA) reported a higher-than-estimated rise of 1.43 MMbbl in crude inventories. Stocks rose to 363.8 MMbbl while refinery utilization fell 0.6 percentage points to 87.4%. The agency reported a marginal increase in U.S. crude production to 8.08 MMbbl/d. A 2.66 MMbbl decline in stocks at Cushing, which fell to a two-year low of 32.1 MMbbl, was the only breather for crude prices in this week’s inventory report. However, stocks at PADD III (Gulf Coast) rose 4.38 MMbbl to 182 MMbbl. Further supporting the price decrease was the easing tension in Ukraine. Putin ordered about 150,000 troops stationed near the border with Ukraine to end their military exercises which had started on February 26. WTI crude futures for April delivery declined $1.88 to settle at $101.45 per barrel.
  5. On Thursday, WTI crude futures declined for the third day in a row as traders reacted to the 1.41 MMbbl rise in distillate stockpiles. Easing geopolitical tensions — due to the meeting between U.S. Secretary of State, John Kerry, and Russia’s Foreign Minister, Sergei Lavrov, in Paris to resolve the Ukrainian crisis — also contributed to the drop in prices. However, prices rebounded later in the day after the U.S. Department of Labor reported a 26,000 reduction in unemployment claims which fell to 323,000, beating analysts’ expectations. WTI crude futures closed for the day at 101.56 per barrel, up $0.11.

Natural gas prices

Henry Hub natural gas futures gained over 3% this week due to the higher-than-expected inventory withdrawals, despite the expectations of tapering winter heating demand. The current level of natural gas inventories of 1,196 Bcf is over 40% lower than the previous year level.

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

  1. Last Friday, natural gas futures rose over 2% after private weather forecasts showed colder-than-normal weather in the eastern U.S. through early March. Natural gas inventories, which stood at 1,348 Bcf — the lowest for this time of the year since 2004 — also supported prices. Henry Hub natural gas futures closed up 9.8 cents at $4.609 per MMBtu.
  2. On Monday, natural gas prices fell on concerns about a likely drop in demand as winter draws to an end. Weather forecasts for the 8–14 day period showed an easing of cold weather in the Midwest, South, and East by mid-March. Henry Hub natural gas futures fell 11.7 cents to close at $4.492 per MMBtu.
  3. On Tuesday, natural gas futures for April delivery rallied over 2% on speculation that the EIA would report a larger-than-average drop in inventories this week due to the cold stint across the United States. Early estimates of inventory withdrawals showed the number to be upward of 140 Bcf, well-above the five-year average draw of 105 Bcf for this time of the year. According to the Department of Energy, over 52% of U.S. households use natural gas for space heating during the November to March winter season. Henry Hub natural gas futures rose 17.5 cents to close at $4.667 per MMBtu.
  4. On Wednesday, natural gas futures fell over 3%, erasing almost all prior-day gains as traders reversed bullish positions due to the end of the winter heating season. Although forecasts for the immediate future continue to show colder-than-normal temperatures, changing weather patterns through March indicate heating demand will taper down. Further, consensus estimates showed an inventory withdrawal of 137 Bcf for the week ending February 28, which is slightly lower than last year’s 149 Bcf during this time. Henry Hub natural gas futures closed down 14.4 cents at $4.523 per MMBtu.
  5. On Thursday, natural gas prices rose sharply after EIA reported 152 Bcf withdrawals from the inventory for the week ending February 28. The number was higher than both the five-year average as well as the previous year value for this time of the year. U.S. natural gas inventories currently stand at 1,196 Bcf, the lowest for this time of the year in a decade and over 40% lower than that of the previous year level. Henry Hub natural gas futures rose 13.9 cents to close at $4.662 per MMBtu.

Futures curve

The forward curve for WTI crude continues to be in backwardation, with December 2014 WTI futures 7% lower than near-month (April) futures due to rising North American crude supplies. The EIA expects U.S. crude production to average 8.42 MMbbl/d in 2014 — the highest since 1987 — boosted by increased drilling in tight oil plays. Natural gas futures are out of backwardation as the colder-than-normal U.S. winter comes to an end — the near-term (April) prices are 2.4% lower than the December 2014 futures.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.21 15.3 -0.57%
Gasoline Demand (MMBPD) 8.41 8.54 -1.45%
Distillate Demand (MMBPD) 3.55 3.62 -1.96%
Production (MMBPD) 8.08 8.06 0.22%
Imports (MMBPD) 7.11 7.04 1.07%
Stocks (million barrels) 363.8 362.4 0.39%
Rotary Rig Count 1,430 1,425 0.35%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,196 1,348 -11.28%
Rotary Rig Count 335 342 -2.05%
Horizontal Rig Count 1,181 1,182 -0.08%
Consumption (Bcf)* 2,912 (Dec 13) 2,305 (Nov 13) 26.32%
Gross Withdrawals (Bcf)* 2,627 (Dec 13) 2,559 (Nov 13) 2.64%
Canadian Imports (Bcf)* 270.1 (Dec 13) 215.9 (Nov 13) 25.11%
LNG Imports (Bcf)* 2.73 (Dec 13) 2.69 (Nov 13) 1.34%

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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