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Weekly Oil & Gas Market Highlights: January 3, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas Price Indicators

Front Month Futures (August) January 3, 2013 December 20, 2012 % Change
Oil – WTI
(USD per barrel)
$92.92 $90.13 3.1%
Oil – Brent
(USD per barrel)
$112.14 $110.20 1.8%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.20 $3.46 -7.6%

Data sources: Bloomberg; CME Group

Crude Oil Prices

WTI futures rose 3.1% during the two-week period due to increased Middle East tensions and the U.S. budget deal to avert the “fiscal cliff.”  However, weak U.S. oil inventory data and economic concerns in the U.S. exerted downward pressure on crude prices.

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

  1. On Friday, December 21, crude futures fell nearly 1.6% as Republican lawmakers called off a vote late Thursday night to avert the fiscal cliff, a $600 billion combination of tax increases and spending cuts set to go into effect at the beginning of 2013. Traders in Asia were concerned that a deal might be impossible in time to avert the crisis. With trading volume light due to the holidays, the price swing was more pronounced. Economic concerns about the fiscal cliff overshadowed the positive economic indicators that had driven futures up on Thursday. The Congressional Budget Office estimated that, in the absence of a deal, going over the fiscal cliff would put the U.S. economy back into recession with GDP contracting at an annualized 1.3% in the first half of 2013 and 2.3% in the second half. WTI crude futures closed at $88.66 per barrel on Friday.
  2. In a shortened trading session on Monday, futures remained relatively unchanged, down just $0.05 per barrel for the day, on very light trading volumes as some traders struggled to find upside amid concerns about the U.S. economic outlook. Futures closed at $88.61 per barrel.
  3. NYMEX futures markets were closed on Tuesday for the Christmas holiday.
  4. On Wednesday, crude futures surged on Middle East concerns as Iran began naval exercises in the Persian Gulf, which were expected to involve the Strait of Hormuz later in the week. A year ago, while Iran was conducting naval exercises, the nation openly discussed the possibility of closing the Strait of Hormuz in response to any military strike on its nuclear facilities. In Israel, Prime Minister Benjamin Netanyahu officially kick-started his re-election campaign by pledging to protect Israel from any threats arising from Iran’s nuclear program. Middle East supply concerns were further fuelled by the Iraqi central government’s decision to suspend nearly $300 billion in funds to Kurdistan as the latter failed to meet its export commitments. The Turkish Minister for Energy announced that oil shipments from northern Iraq had fallen by ~100,000 bbl/d. In early 2012, the Kurdish Ministry of Natural Resources had halted a similar amount of oil shipments, but resumed supply nearly four months later as the central government promised payment of ~$550 million. However, the Kurdish government was not paid the full amount and thus reduced output. Positive economic news from the U.S. also helped push prices up. In a survey of 20 U.S. cities, the Standard & Poor’s Case-Shiller home price index (S&P/Case-Shiller index) increased 4.3% from last year. The figure was the largest year-on-year gain in over two years. Although home prices fell in 12 of 20 cities from September, the broader trend was viewed positively as the October data marks the fifth straight monthly gain in the index. Crude future closed at $90.98 per barrel, up $2.37.
  5. On Thursday, crude futures rose as the new Prime Minister of Japan, Shinzo Abe, introduced monetary easing measures designed to jump-start the economy. In the Middle East, the Zueitina oil terminal was shut down for the fourth day in a row as over a hundred protestors picketed outside the facility demanding jobs. The facility pumps nearly 60,000 bbl/d of oil, which is roughly 20% of Libya’s oil exports. Futures began falling during New York trading as Senator Harry Reid said that the U.S. economy was poised to go over the fiscal cliff since Republicans were refusing to support tax increases as part of a new budget package. The news sent the Dow, S&P 500, and Nasdaq all down by over 1%. However, futures began rising again as House Minority Leader Eric Cantor stated that the House might remain in session until January 2, the last day of the current 112th Congress, in order to work out a deal. In economic news, the Department of Labor announced that new applications for unemployment benefits fell by 12,000 to 350,000, the lowest level in over four years, which is supportive of crude prices. However, some analysts believed that the figures might be overstated given the Christmas holiday. Also, given federal and state government holidays, the figures had to be estimated for 19 states, including California and Texas. Futures closed marginally down at $90.87 per barrel.
  6. On Friday, crude futures rose in Asian trading on optimism that the U.S. would reach a deal to avoid the fiscal cliff. However, putting downward pressure on prices, Japan’s new Minister for Economy, Trade and Industry, Toshimitsu Motegi, announced that the incoming government will abandon plans to phaseout nuclear power by 2040 as pledged by the previous government. The plan is bearish for Japan’s oil imports since the country is likely to use less oil than previously projected and most of the oil it consumes is imported. Futures fell in New York trading following the U.S. Energy Information Administration’s (EIA) release of its weekly oil stocks data. The data showed that inventories fell by 586,000 barrels, well below analyst expectations of nearly two million barrels. The data also showed that distillate stocks rose by 2.4 MMbbl while gasoline stocks rose 3.8 MMbbl—both figures much higher than analyst expectations. Futures closed down 0.1% at $90.80 per barrel.
  7. Crude futures fell in Asian trading on Monday, driven by bearish inventory data and economic concerns from the U.S. China’s Purchasing Manager’s Index (PMI) from HSBC showed an increase from 50.5 in November to 51.5 in December, which is a bullish indicator for crude demand in the world’s second-largest oil importer. Concerns about the fiscal cliff sent futures seesawing for much of the day. As New York trading began, traders were pessimistic that a deal would be reached between the administration and Congress to avert the crisis. Futures began rising later in the day as President Obama announced that a possible deal was in the making. The details of the agreement revealed that it would increase taxes on those making more than $450,000 per year and extend unemployment benefits to recipients for another year. Futures closed 1.1% up at $91.82 per barrel.
  8. Markets were closed on Tuesday for the New Year holiday.
  9. On Wednesday, crude futures rose 1.4% as the House of Representatives passed a bill to avert the fiscal cliff by raising taxes on those making over $450,000 per year, making the Bush-era tax cuts permanent for those earning less than that, and postponing the automatic across-the-board spending cuts for two months so that lawmakers can work out the details of those cuts. The measure still needs to pass the Senate before it can go to President Obama for signature.
  10. Crude futures fell in Thursday trading as analysts remained concerned that the budget deal had not done enough to address the economic difficulties facing the U.S. economy. Moody’s Investors Service said that the U.S. debt-to-GDP ratio would rise to nearly 80% in 2014 and would remain there at least through 2020. The agency stated that a future downgrade of U.S. government debt may be likely. Also contributing to the bearish news, the Department of Labor data showed that new jobless claims rose by 10,000 to 372,000 during the prior week. On the upside, the Seaway pipeline is expected to resume service, bringing 400,000 bbl/d from the trading hub at Cushing, OK to the U.S. Gulf Coast. Historic levels of oil inventories at Cushing have put substantial downward pressure on prices. Last week’s reported EIA data revealed that oil stocks at Cushing were 49.2 MMbbl, a new record. The EIA will delay its release of data this week until Friday as a result of the New Year holiday. Futures closed 0.2% down at $92.92 per barrel.

Natural Gas Prices

U.S. Henry Hub futures fell sharply and closed at $3.20 per MMBtu, in contrast to a positive price movement in oil prices. During the Christmas week, prices rose on account of a short-lived cold snap and higher-than-normal nuclear power plant outages. However, prices fell sharply this week due to above-average weather forecasts.

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

  1. On Friday, December 21, natural gas futures fell largely due to profit-taking following the Thursday rise on bullish EIA data. Traders booking profits pushed prices down even as the National Weather Service’s (NWS) 6–10 day forecast showed below-average temperatures covering most of the country except for Florida, the Great Lakes, and parts of Texas and New Mexico. Only Maine and a small portion of the northern Great Lakes showed above-average temperatures. Natural gas futures ended down 1.1 cents at $3.451 per MMBtu.
  2. During a shortened trading session on Monday, natural gas futures fell as forecasts from the NWS showed milder temperatures in the 8–10 day forecast. The 6–10 day forecast showed a continuation of cooler-than-normal temperatures across much of the country, with only Southern Texas and New Mexico showing above-average temperatures. However, traders are concerned that this year’s temperatures may not be cool enough to substantially reduce natural gas inventories during the heating season. Some traders expect a continuation of only modest withdrawal of natural gas from storage, which would be bearish for futures. Henry Hub natural gas futures closed down 10.5 cents at $3.346 per MMBtu on Monday.
  3. NYMEX futures markets were closed on Tuesday for the Christmas holiday.
  4. On Wednesday, natural gas futures rose for the first time over the past three sessions as traders noted increased natural gas demand during the current cold snap across much of the country. However, the NWS 6–10 and 8–14 day forecasts showed above-average temperatures covering the northern part of the West and East North Central electricity demand regions. Traders expected the rally to be short-lived as mild temperatures were expected over the next few days. Traders also expected a bearish natural gas inventory report from the EIA later in the week. Providing some support to natural gas futures, nuclear power plant outages are currently at 11,400 MW, nearly 6,000 MW above average for this time of year. Futures ended up 4.6 cents (~1.5%) at $3.392 per MMBtu.
  5. On Thursday, natural gas futures for the January delivery expired down 3.8 cents at $3.354 per MMBtu. Natural gas futures rose over 10% in 2012 due to increased demand from the power sector. During the year, gas prices fell to historic lows in the spring and summer months, which encouraged utilities switched to natural gas for power burn to take advantage of 10-year low natural gas prices. However, a natural gas futures market in super-contango, helped to boost natural gas prices during the latter part of the year. Traders are concerned whether the temperatures during the winter heating season will be sufficiently low to drive enough demand to reduce inventories. The revised NWS forecasts showed a warming trend moving down from the northern part of the country that covered most of the North Central regions and part of the Middle Atlantic. Only California, Nevada, and New Mexico showed below-average temperatures in the 8–10 day forecast.
  6. Natural gas futures rose 11.5 cents to $3.469 per MMBtu in Friday trading as investors focused on cooling weather forecasts and largely shrugged off EIA’s bearish inventory data. The EIA reported that natural gas in storage fell by 72 Bcf, in line with analyst expectations. However, the figure compared bearishly with last year’s draw of 81 Bcf and the five-year average draw of 140 Bcf. This is the fourth straight year that gas in storage is at an all-time high during the heating season. At 3,652 Bcf, gas inventories are still at record highs for this time of year. Nuclear power plant outages provided some support to gas futures. Nuclear outages were 4,000 MW above last year’s level of 10,300 MW. Prices rose primarily as a result of a revised weather forecast from the NWS which showed below-average temperatures sweeping across the middle and southern portions of the country while the area of above-average temperatures contracted in the North Central electricity demand regions to cover Montana, North Dakota, Minnesota, Wisconsin, and parts of Michigan.
  7. On Monday, natural gas futures fell 11.8 cents (3.4%) to close at $3.351 per MMBtu as the revised NWS forecasts showed above-average temperatures return across much of the country. The 6–10 day forecast showed a probability of above-average temperatures covering most of the Central, South, and Eastern U.S., with the highest probability in Minnesota and Wisconsin. Only a few Western states, including California, Nevada, and New Mexico, showed chances of below-average temperatures.
  8. Markets were closed on Tuesday for the New Year holiday.
  9. On Wednesday, natural gas futures posted another weather-driven loss, falling 11.8 cents to $3.233 per MMBtu. Prices briefly fell to $3.05 per MMBtu in overnight trading, pressured by bearish weather forecasts. The 6–10 day forecast showed a high probability of above-average temperatures continuing across the Eastern half of the U.S., with the highest probability concentrated in the power demand centers of the Middle Atlantic, East North Central, and South Atlantic regions. Nuclear power plant outages were 8,500 MW above the 6,400 MW out at the same time last year.
  10. On Thursday, natural gas futures fell 3.5 cents (>1%) to close at $3.198 per MMBtu, driven by continued bearish weather forecasts for the next few weeks. The NWS 6–10 day forecast showed the eastern half of the U.S. with a high probability of above-average temperatures, particularly the Middle Atlantic region. The 8–10 day forecast showed a continuation of the trend, but the area of warmer temperatures continued to advance eastward as normal temperatures replaced warm temperatures in the middle part of the country. Much of the western half of the country showed below-average temperatures, but given that it is sparsely populated apart from the coastal regions, it was not expected to drive much demand.

Futures Curve

September 2013 futures of WTI is 1.7% higher than current prices, reflecting the average cost of carry, limited upside in demand, and adequate supply. However, the September 2013 natural gas futures premium widened to 8.3% due to the recent fall in near-month (January and February) 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) 15.3 15.59 -1.86%
Gasoline Demand (MMBPD) 8.61 8.62 -0.12%
Distillate Demand (MMBPD) 3.71 4.21 -11.88%
Production (MMBPD) 6.98 6.86 1.75%
Imports (MMBPD) 8.03 8.39 -4.29%
Stocks (million barrels) 371.1 371.6 -0.13%
Rotary Rig Count 1,327 1,381 -3.91%
Natural Gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) N/A** 3,724 N/A**
Rotary Rig Count 431 416 -0.24%
Horizontal Rig Count 1,111 1,105 0.18%
Consumption (Bcf)*** 1,790 (Sep 12) 1,982 (Aug 12) -9.68%
Gross Withdrawals (Bcf)*** 2,423 (Sep 12) 2,376 (Aug 12) 1.97%
Canadian Imports (Bcf)*** 240.40 (Sep 12) 262.17 (Aug 12) -8.31%
LNG Imports (Bcf)*** 11.50 (Sep 12) 19.10 (Aug 12) -39.79%

Notes:
* Petroleum data under this period is for the week ending December 21, 2012.  
** At the time of the preparation of this report, EIA has not yet released its weekly natural gas data.
*** 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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