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Weekly Oil & Gas Market Highlights: April 24, 2014

Deloitte Center for Energy Solutions publication

Key Oil & Gas price indicators

Front Month Futures April 24,
2014
April 17,
2014
% Change
Oil – WTI
(USD per barrel)
$101.94 $104.30 -2.3%
Oil – Western Canadian Select*
(USD per barrel)
$83.34 $86.00 -3.1%
Oil – Brent
(USD per barrel)
$110.33 $109.53 0.7%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.71 $4.74 -0.8%

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 futures fell over 2% this week and the discount to Brent widened to a seven-month low due to rising crude inventories in the United States. Total crude stocks in the country reached an 83-year high of 397.7 MMbbl. However, global geopolitical tensions continued to maintain the prices above $100 per barrel.

Daily closing price
Note: Intra-day prices (every 6 hours); May month futures expired on April 22, 2014
Data source: Bloomberg

  1. Last Friday, the market was closed for the Good Friday holiday.
  2. On Monday, crude futures fell as the U.S. and Europe urged Russia to work to maintain calm in Ukraine after three people were killed in eastern Ukraine over the weekend. Russian Ambassador Sergei Kislyak said new sanctions against Russia would be indicative of “the revival of the Cold War mentality.”  Crude fell as analysts speculated that Russia would not reduce energy-related exports as a result of the Ukraine crisis and that energy-related sanctions against the country did not seem imminent. Later in the day, crude futures rose as Libyan rebels said a deal involving returning two ports to government control was on the verge of breaking down because payments, which were part of the deal, have not been made. Over the course of the stand-off, Libya has fallen two positions down to become the lowest volume producer of crude in the 12-member OPEC group. During New York trading, the U.S. State Department said it would delay a ruling on the Keystone XL pipeline until an inquiry is completed over how approval was obtained for the pipeline’s northern route through Nebraska. Questions about the pipeline’s path in Nebraska rose in February when a state judge invalidated the governor’s approval and called for the involvement of the state’s Public Service Commission. The postponement effectively pushes the decision until after the November midterm elections, which is negative for WTI prices and will widen the Brent-WTI price spread. WTI futures closed up $0.07 cents at $104.37 per barrel.
  3. On Tuesday, during Asian trading, crude futures largely moved sideways as Ukrainian and pro-Russian gunmen clashed in eastern Ukraine. Russian Foreign Minister Sergey Lavrov called on the U.S. to put pressure on the Ukrainian government to crack down on “right-wing” militia. Meanwhile Vice President Joe Biden met with officials in Kiev as a diplomatic accord reached last week to defuse the crisis neared collapse. Crude futures tumbled during New York trading as investors closed out positions ahead of the expiration of the May contract at the end of trading. Also fueling the decline was speculation that this week’s crude oil inventory data could show U.S. crude stockpiles exceeded the all-time high of 397.5 MMbbl reached in May 2013. Rising production and ongoing refinery turnarounds are helping to fuel the rise. WTI crude futures for May delivery closed down $2.24 and expired at $102.13 per barrel. June futures, which moved into the front-month contract, closed down $1.90 at $101.74 per barrel.
  4. On Wednesday, crude futures rose during London trading as the government of Ukraine said it will resume operations to oust pro-Russian militants from the eastern part of the country while Russia vowed to defend Russian citizens in Ukraine. Foreign Minister Lavrov also said Russia would retaliate if its “legitimate interests” were directly attacked. Later in the day, crude futures fell as the Energy Information Administration (EIA) announced U.S. crude stockpiles rose 3.52 MMbbl to 397.7 MMbbl, the highest level in 83 years (U.S. government data dates back to 1920). U.S. production rose to 8.36 MMbbl, the highest level since 1988 while supplies on the Gulf Coast rose to 209.6 MMbbl, the highest level since the government began tracking crude inventory data for each Petroleum Area for Defense District in 1990. Crude supplies at Cushing fell 788,000 barrels to 26 million, the lowest level since October 2009. WTI crude futures for June delivery closed down $0.30 at $101.44 per barrel.
  5. Crude futures rebounded on Thursday as Ukrainian forces killed five pro-Russian militants in eastern Ukraine. Russian President Putin stated if Ukraine used its forces against its own citizens it “is a very serious crime against its own nation.”  Russia, meanwhile, ratcheted up tensions by beginning military drills on its border with Ukraine. Crude futures also found support as Germany’s Ifo Institute reported German business confidence rose from 110.7 in March to 111.2 in April. The rise exceeded analyst expectations. During New York trading, the U.S. Department of Commerce reported that orders for durable goods rose 2.6% last month, the highest gain since November last year. WTI crude futures rose $0.50 to close for the day at $101.94 per barrel.

Natural gas prices

Henry Hub natural gas futures fell nearly 1% primarily due to a higher-than-expected injection in storage. However, prices are still at a two-month high boosted by natural gas inventory data at 899 Bcf, the lowest for this time of the year in a decade.

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

  1. Last Friday, the market was closed for the Good Friday holiday.
  2. On Monday, natural gas futures fell on profit-taking and milder weather forecasts for the near term. The May-month contract touched a two-month high earlier in the day at $4.789 per MMBtu on growing speculation that U.S. natural gas storage levels may not refill quickly enough to ensure adequate supplies by the beginning of the winter heating season. Current storage at 850 Bcf is 850 Bcf, or 50%, below last year’s level and 54%, or 1,010 Bcf, below the five-year average. Henry Hub natural gas futures closed down 4.4 cents at $4.697 per MMBtu.
  3. On Tuesday, natural gas futures gained as revised weather forecasts from the National Weather Service showed below-average temperatures across the eastern half of the country extending into the Rockies as well.  With gas inventories at current lows, any lingering need for heating in this spring season will keep a floor under prices. Henry Hub natural gas futures closed up 4.2 cents at $4.739 per MMBtu.
  4. On Wednesday, natural gas futures traded largely sideways amid weather forecasts showing the area of below-average temperatures expanding in the 8–14 day outlook to include parts of the West Coast.  Continued below-average temperatures across the U.S. are expected to keep injections near or below the five-year average, making it more difficult for producers to rebuild depleted inventories. Prices ended slightly lower as traders booked profits after the intra-day prices climbed as high as $4.777 per MMBtu. Henry Hub natural gas futures closed down 0.9 cents at $4.730 per MMBtu.
  5. On Thursday, natural gas futures fell as the EIA reported natural gas inventories rose 49 Bcf to 899 Bcf last week. The injection was neutral versus the five-year average injection of 47 Bcf, but bearish versus last year’s 30 Bcf injection. The injection narrowed the deficit to year-ago levels, pushing it below 50% to 48% or 835 Bcf below last year’s levels. The deficit to the five-year average widened marginally to 52.9% from 52.6% last week.
    Henry Hub natural gas futures fell 2.5 cents to close for the day at $4.705 per MMBtu.

Futures curve

The forward curve for WTI crude continues to be in backwardation, with December 2014 WTI futures nearly 4.6% lower than near-month (June) futures due to rising North American crude production and stockpiles. The EIA expects U.S. crude production to average 8.4 MMbbl/d in 2014 — the highest since 1987 — boosted by increased drilling in tight oil plays. Natural gas futures are out of backwardation following the end of the winter heating season. Near-term (May) prices are 3.5% 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) 15.98 15.61 2.37%
Gasoline Demand (MMBPD) 8.43 8.62 -2.20%
Distillate Demand (MMBPD) 3.83 4.17 -8.15%
Production (MMBPD) 8.36 8.30 0.72%
Imports (MMBPD) 7.79 8.27 -5.80%
Stocks (million barrels) 397.7 394.1 0.91%
Rotary Rig Count 1,510 1,517 -0.46%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 899 850 5.76%
Rotary Rig Count 316 310 1.94%
Horizontal Rig Count 1,224 1,224 NC
Consumption (Bcf)* 3,219 (Jan 14) 2,912 (Dec 13) 10.54%
Gross Withdrawals (Bcf)* 2,640 (Jan 14) 2,631 (Dec 13) 0.34%
Canadian Imports (Bcf)* 286.5 (Jan 14) 270.3 (Dec 13) 5.99%
LNG Imports (Bcf)* 8.5 (Jan 14) 2.7 (Dec 13) 214.81%

Notes:
NC - No Change
* 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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About the Deloitte Center for Energy Solutions
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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.

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