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Weekly Oil & Gas Market Highlights: October 31, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures October 31,
2013
October 24,
2013
% Change
Oil – WTI
(USD per barrel)
$96.38 $97.11 -0.8%
Oil – Western Canadian Select*
(USD per barrel)
$59.03 $64.36 -8.3%
Oil – Brent
(USD per barrel)
$108.84 $106.99 1.7%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.58 $3.63 -1.3%

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 settled down 0.8% this week, erasing earlier gains, largely due to weaker-than-expected crude inventory data. Earlier in the week, futures rose due to supply disruptions in Libya and positive economic news from the UK and the United States.

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

  1. Last Friday, crude futures gained support as the UK reported GDP growth of 0.8% in the third quarter, up from 0.7% in 2Q13. The increase was the second-highest growth in the UK since 2008. Oil markets continued to be buoyed by expectations the Federal Reserve (the “Fed”) will retain its $85 billion per month bond-buying program known as quantitative easing. Futures rose as the Department of Commerce reported U.S. durable goods spending rose 3.7% in September—higher than analyst expectations—driven by orders for aircraft.However, factoring out aircraft purchases, non-military capital goods spending was down 1.1% during the month. WTI crude futures for December delivery closed up $0.74 at $97.85 per barrel.
  2. On Monday, crude futures rose as Libya reported a fall in crude exports, which stood at less than 10% of total capacity due to protests at the country’s export ports and producing fields. Crude exports from the Zawiya and Mellitah port were halted. Exports were reported to have fallen to 90,000 bbl/d while production declined to about 250,000 bbl/d. Futures also received support as several car bombs exploded in Baghdad over the weekend, killing more than 60 people. Market participants are concerned over possible disruption of oil production in Iraq due to persisting unrest in the country. During New York trading, crude futures fell briefly following the news of a delay in repairing the crude distillation unit of a 175,000 bbl/d refinery in Illinois. The refinery unit was damaged by fire last Wednesday and it expected to take five to six months to bring the unit back online. Investors awaited the outcome of a meeting of the Federal Open Market Committee and the U.S. Energy Information Administration (EIA) weekly oil market report on Wednesday to determine market direction. WTI crude futures closed up $0.83 at $98.68 per barrel.
  3. On Tuesday, Libya’s Prime Minister Ali Zeidan stated crude exports from the 110,000 bbl/d port facility at Hariga would resume next week. Futures received support as Goldman Sachs lowered its 2013 estimate for oil production by OPEC. Analysts expect 2013 OPEC production to fall 0.76 MMbbl/d, higher than the earlier estimated 0.57 MMbbl/d production loss. However, futures prices weakened due to expectations of crude inventories rising to a four-month high in EIA’s crude inventory report this week. WTI crude futures fell $0.48 to $98.20 per barrel.
  4. On Wednesday, Libya was unable to restart its 350,000 bbl/d Sharara field according to a spokesperson for Tuareg protestors, who are pressuring the government for official recognition of their language and political rights in the country. The disruptions in Libya have increased the Brent premium over WTI to a seven-month high of $13.09. Since the beginning of the year, the Brent/WTI price differential has ranged from a $23.44 premium for Brent to a brief 8 cent premium for WTI. WTI crude fell during New York trading as the EIA reported crude stocks increased 4.09 MMbbls to 383.9 MMbbls last week, which was above analyst expectations. Supplies at Cushing, the key pricing point for WTI crude, rose by 2.18 MMbbls to 35.5 MMbbls. During its meeting on Wednesday, the Fed decided to continue its $85 billion per month bond purchase program, citing the need for stronger evidence of improvement in the U.S. economy. WTI crude futures for December delivery fell $1.43 to close at $96.77 per barrel.
  5. On Thursday, crude futures fell as the dollar strengthened versus the euro on a possible reduction in interest rates by the European Central Bank in order to boost economic recovery in the region. A strong dollar is bearish for crude demand in international markets, as crude oil is traded primarily in U.S. dollars. An official from Libya's Oil and Gas Ministry announced that production at the country's Sharara field could restart in the next 10 days. Futures also fell as traders remained concerned about the rising crude supplies from the U.S., currently at a 24-year high of over 7.80 MMbbl/d. WTI crude futures closed for the day at $96.38 per barrel, down $0.39.

Natural gas prices

U.S. Henry Hub natural gas futures fell 1.3% this week due to expectations of milder weather in most parts of the country. A slightly higher-than-expected build in natural gas inventory also helped push prices down.

Closing price
Note: Intra-day prices (every 6 hours); November month futures expired on October 29, 2013
Data source: Bloomberg

  1. Last Friday, natural gas futures rose on initial expectations of cold weather conditions across the eastern part of the U.S. this week. However, some traders noted downside risk in forecasts for more moderate temperatures in early November. Futures also rose on expectations of a modest injection of natural gas into storage for the week ending November 1. Traders expected the build, which will be announced in next week’s EIA report, to be below the five-year average. Baker Hughes reported the gas-directed rig count rose by four rigs to 376. Henry Hub natural gas futures closed up 7.8 cents at $3.707 per MMBtu on the NYMEX.
  2. On Monday, natural gas futures fell as revised weather forecasts from the National Weather Service (NWS) showed moderate temperatures across much of the country, which was expected to lessen gas-derived heating demand. Concerns over moderating temperatures were sufficient to overcome expectations of a bullish inventory build this week. The EIA also forecast another record year for natural gas production in the United States. Henry Hub natural gas futures closed down 13.8 cents at $3.569 per MMBtu.
  3. On Tuesday, natural gas futures fell on expectations of persisting mild temperatures in the early part of November. Some traders believed futures are currently oversold and due for a bounce. The front-month November contract closed down 7.3 cents and expired at $3.496 per MMBtu. The December contract, which moved into the front-month position, traded at a 13 cent premium over the expired contract.
  4. On Wednesday, natural gas futures fell moderately due to continued expectations of mild temperatures in the NWS 6–10 day and 8–14 day forecasts. The forecast also showed above-average temperatures across much of eastern United States. However, the downside was limited by expectations of a bullish natural gas inventory report from the EIA this week. Henry Hub natural gas futures for December delivery closed down 0.9 cents at $3.62 per MMBtu.
  5. On Thursday, natural gas futures fell as the EIA released its weekly natural gas inventory report showing an injection of 38 Bcf, marginally higher than the 37 Bcf estimated by analysts. However, the build was below the injection of 66 Bcf a year ago and the five-year average injection of 57 Bcf. Working gas in storage now stands at 3,779 Bcf. Henry Hub natural gas futures closed for the day at $3.581 per MMBtu, down 3.9 cents.

Futures curve

The forward curve for WTI crude is in backwardation, with June 2014 WTI futures 1.4% lower than near-month (December) futures, primarily due to growing North American supply. However, June 2014 natural gas futures are at a premium of 3.1% over December 2013 futures due to expectations of moderate supply growth and higher demand from commercial and residential sectors in 2014.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.05 14.86 1.28%
Gasoline Demand (MMBPD) 9.05 9.07 -0.22%
Distillate Demand (MMBPD) 4.15 3.33 24.62%
Production (MMBPD) 7.85 7.90 -0.63%
Imports (MMBPD) 7.45 7.66 -2.74%
Stocks (million barrels) 383.9 379.8 1.08%
Rotary Rig Count 1,357 1,361 -0.29%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,779 3,741 1.02%
Rotary Rig Count 376 372 1.08%
Horizontal Rig Count 1,098 1,099 -0.09%
Consumption (Bcf)* 1,910 (Jul 13) 1,727 (Jun 13) 10.60%
Gross Withdrawals (Bcf)* 2,552 (Jul 13) 2,453 (Jun 13) 4.03%
Canadian Imports (Bcf)* 225.9 (Jul 13) 228.9 (Jun 13) -1.31%
LNG Imports (Bcf)* 8.1 (Jul 13) 8.1 (Jun 13) NC

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)

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