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Weekly Oil & Gas Market Highlights: July 18, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures July 18, 2013 July 11, 2013 % Change
Oil – WTI
(USD per barrel)
$108.04 $104.91 3.0%
Oil – Western Canadian Select*
(USD per barrel)
$92.40 $89.1 3.7%
Oil – Brent
(USD per barrel)
$108.70 $107.73 0.9%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.81 $3.61 5.5%

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 rose 3% this week primarily due to a strong decline in U.S. unemployment data. Although moderating Chinese economic growth exerted a downward pull, positive economic data from the U.S. and a series of large declines in reported weekly crude inventories supported rising WTI prices and narrowed the Brent-WTI spread to less than $1 per barrel.

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

  1. Crude futures fell during Asian trading last Friday as Chinese Minister of Finance Lou Jiwei reported the country’s economy may not meet its 7.5% growth target for 2013. However, he believes a 7% growth rate is achievable. Prices rose during European trading, as Iraq temporarily shut down a 1.65 MMbbl/d pipeline from Mosul, Iraq, to Ceyhan, Turkey, for repairs. The line was scheduled to resume pumping later in the day. During New York trading, futures rose on speculation U.S. crude inventories would continue to show a decline in the next release of the Energy Information Administration’s (EIA) weekly crude stocks report. Crude stockpiles have fallen by 20 MMbbl over the past two weeks, the largest two-week decline since the EIA began keeping record in 1982. WTI crude for August delivery closed up $1.04 at $105.95 per barrel. Brent closed up $1.08 at $108.81 per barrel, narrowing its premium to WTI to $2.86 a barrel.
  2. On Monday, crude futures rose as China reported its second-quarter GDP increased 7.5% year-over-year (YoY), in line with analyst expectations. The GDP growth was down slightly from the 7.7% registered in the first quarter, but oil consumption was up 11% YoY to just under 10 MMbbl/d. Futures fell later, however, as China’s June-month industrial output growth rate, at 8.9%, was below analyst expectations. During New York trading, futures fell as the Department of Commerce reported U.S. retail sales grew just 0.4% last month, only half the amount analysts expected. However, continued unrest in Egypt, which controls the Suez canal, helped buoy oil futures later in the day as protestors called for mass demonstrations to demand the return to office of ousted President Mohammed Morsi. WTI futures closed up $0.37 at $106.32 per barrel on the NYMEX.
  3. On Tuesday, crude futures moved up during early trading on expectations of another draw on U.S. crude inventories this week. Investors are eyeing increased summer output from U.S. refineries to meet rising summer gasoline demand. The American Petroleum Institute’s weekly oil report, a less-closely watched report due to its reliance on self-reporting by industry, forecast a 2.6 MMbbl decline in crude stocks this week. Crude futures declined later in the day as the Labor Department reported U.S. consumer prices rose at a 1.8% annualized rate, higher than analyst expectations. The news increased concerns about an impending end to the $85 billion per month bond-buying program by the Federal Reserve. Reinforcing the view, Esther George, president of the Federal Reserve Bank in Kansas City, stated the Fed should begin winding down its bond-buying program soon. WTI crude futures eased $0.32 to close at $106.00 per barrel.
  4. Crude futures rose on Wednesday as the EIA released its weekly oil stocks report, which showed a 6.9 MMbbl drop in inventories, the third straight week of declines. Crude stockpiles have fallen nearly 27 MMbbl over the past three weeks and are currently at 367.0 MMbbl, the lowest level since mid-January. News of the decline in crude stocks overrode concerns emanating from a Congressional testimony by Federal Reserve Chairmen Ben Bernanke about the potential winding down of the Fed’s bond buying program, which he speculated might come to a close in mid-2014. Light sweet crude for August delivery closed up $0.48 at $106.48 per barrel.
  5. On Thursday, crude futures fell slightly during Asian trading as a Bloomberg report estimated China produced 4.26 MMbbl/d of crude in June, the highest amount since November 2010. Also in supply news, Saudi Arabia exported 7.79 MMbbl/d in May, the highest level since June 2012. Crude futures spiked later in the day as the U.S. Department of Labor reported new unemployment claims fell by 24,000 to 334,000, better than analyst expectations. Crude futures rose $1.56 to close at $108.04 per barrel, a 16-month high. The Brent-WTI spread fell to $0.66 per barrel, down from $23.44 per barrel in February.

Natural gas prices

U.S. Henry Hub natural gas futures traded sideways most of the week before rising sharply on Thursday. Prices rose over 5% as the EIA reported a lower-than-expected weekly injection in natural gas storage. Current inventory levels are still 1% below the five-year average and 13% below last year’s level.

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

  1. Last Friday, Henry Hub natural gas futures closed up modestly as traders battled a bearish 82 Bcf increase in natural gas inventories reported by the EIA a day before. Expectations of warmer weather next week, supported by forecasts from the National Weather Service (NWS) and MDA Weather Services, helped push futures up during the day. Baker Hughes reported the gas-directed rig count rose by seven to 362. Natural gas futures for August delivery rose 3.1 cents to close at $3.644 per MMBtu.
  2. On Monday, futures rose during a seesaw trading session driven by weather forecasts. Futures fell early in the day as revised weather forecasts from the NWS showed below-average temperatures for central and eastern United States in the 6–10 day forecast, with above-average temperatures only in the west and southwest. The 8–14 day forecast showed above-average temperatures retreating, which is bearish for natural gas demand. Later in the day, futures rose on speculation that this week’s warm weather will boost natural gas demand and limit next week’s expected net injection of gas in storage. Henry Hub futures closed up 3 cents at $3.674 per MMBtu.
  3. On Tuesday, natural gas futures remained nearly unchanged as investors noted higher demand in the Northeast due to increased air conditioning in response to the current heat wave. However, investors balanced current demand with forecasts from the NWS showing the warm trend moderating in the 6–10 and 8–14 day forecasts. Natural gas futures closed up 0.3 cents at $3.677 per MMBtu.
  4. On Wednesday, natural gas futures fell as investors focused on predictions of milder weather in the upcoming forecast periods. Traders also closed long positions ahead of Thursday’s release of EIA’s natural gas storage report, in which investors expected to see an injection well above last year’s 29 Bcf injection during the same week. The EIA projects a large natural gas working inventory of 3,809 Bcf at the end of the injection season, another bearish market signal. Natural gas futures closed down 4.8 cents at $3.629 per MMBtu.
  5. On Thursday, natural gas futures made strong gains as the EIA reported a 58 Bcf injection, which was below analyst expectations of 64 Bcf. The net injection was the first in seven weeks to fall below the five-year average injection, currently at 70 Bcf. Natural gas inventories are currently 13% below last year’s level and just 1% below the five-year average. Natural gas futures rose nearly 11 cents (3%) following the release of the EIA report. Henry Hub natural gas futures closed for the day at $3.812 per MMBtu, up 18.3 cents.

Futures curve

The forward curve for WTI crude futures is in backwardation where March 2014 WTI futures are 8% lower than current prices due to growing North American supply and weak demand growth in major economies globally. However, March 2014 natural gas futures are at a premium of 7% to near-month (August) futures due to moderating supply growth 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) 16.24 16.12 0.74%
Gasoline Demand (MMBPD) 8.73 9.3 -6.13%
Distillate Demand (MMBPD) 3.82 3.84 -0.52%
Production (MMBPD) 7.50 7.4 1.35%
Imports (MMBPD) 7.71 7.53 2.39%
Stocks (million barrels) 367.0 373.9 -1.85%
Rotary Rig Count 1,391 1,395 -0.29%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,745 2,687 2.16%
Rotary Rig Count 362 355 1.97%
Horizontal Rig Count 1,058 1,068 -0.94%
Consumption (Bcf)* 1,946 (Apr 13) 2,508 (Mar 13) -22.43%
Gross Withdrawals (Bcf)* 2,481 (Apr 13) 2,548 (Mar 13) -2.64%
Canadian Imports (Bcf)* 215 (Apr 13) 240 (Mar 13) -10.61%
LNG Imports (Bcf)* 5.2 (Apr 13) 8.3 (Mar 13) -37.64%

Notes:
* The EIA does not provide weekly natural gas consumption, withdrawal, and import numbers. Thus, the latest available monthly numbers are reported above.
NC – No Change;
Data source: U.S. Energy Information Administration (EIA)

Comments and questions welcomed. Please contact DeloitteCenterforEnergySolutions@deloitte.com.

Learn more

Deloitte Global Energy & Resources practice’s new report, 2013 Oil & Gas Reality Check explores the industry fundamentals of each trend – the supply, demand, macroeconomic, regulatory, cost, price, and competitive behavior factors. The paper provides insights and describes what may unfold over the short and the long term.

Deloitte’s new report Surveying Energy Attitudes: Industry Insiders and the Public's Outlook on the Future of U.S. Oil and Gas summarizes a survey conducted by Deloitte on 250 oil and gas professionals, as well as over 600 members of the general population.

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.

Save these dates

July 25, 2013
The Realities of Demand Moderation and Energy Efficiency
Join us for a discussion exploring what the future might hold for U.S. utilities as they manage rising capital costs, escalating operational costs, and decreased demand for electricity as their customers are evolving into more informed energy consumers. Space is limited – register today! For more information contact Soy Lee.

September 18-20, 2013
2013 Deloitte Alternative Energy Seminar – Innovation: Changing the Future of Alternative Energy
This seminar focuses on the unique business, tax, and accounting issues affecting companies operating or investing in the alternative energy sector. Plenary sessions will examine the future of alternative energy and ways innovative thinking is making the difference in addressing the challenges and opportunities the sector faces. These sessions will also explore how business strategies are adapting as a result of broader energy industry impacts such as energy management, competing technologies and a changing fuel mix. Elective sessions allow participants to delve into the unique business and technical issues faced by companies operating or investing in alternative and renewable energy.

November 19, 2013
Deloitte Oil & Gas Conference
– Houston, TX
For more information, please contact OilandGasConference@deloitte.com

About the Deloitte Center for Energy Solutions
The Deloitte Center for Energy Solutions provides a forum for innovation, thought leadership, groundbreaking research, and industry collaboration to help companies solve the most complex energy challenges.

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.

With locations in Houston and Washington, D.C., the Deloitte Center for Energy Solutions offers interaction through seminars, roundtables and other forms of engagement, where established and growing companies can come together to learn, discuss and debate. 
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