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Weekly Oil & Gas Market Highlights: July 11, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures July 11, 2013 July 27, 2013 % Change
Oil – WTI
(USD per barrel)
$104.91 $97.05 8.1%
Oil – Western Canadian Select*
(USD per barrel)
$89.1 $82.8 7.6%
Oil – Brent
(USD per barrel)
$107.73 $102.82 4.8%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.61 $3.58 0.9%

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 nearly $8 per barrel over the past two weeks, primarily due to political tensions in Egypt and positive U.S. inventory data. Although the news around rising non-OPEC output exerted downward pressure, positive U.S. economic data supported the prices.

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

  1. On Friday, June 28, crude futures rose as Germany’s Federal Statistics Office released data showing that sales increased 0.8% in May over April, beating analyst expectations. During New York trading, the Thomson Reuters/University of Michigan index of consumer confidence reported consumer confidence at 84.1, which was also above analyst expectations and bullish for crude. However, Federal Reserve Governor Jeremy Stein said the Fed may decide in September about winding down the bank’s $85 billion per month monetary stimulus program. The news sent the dollar higher, which helped drive down oil futures later in the day. WTI crude futures closed for the day at $96.56 per barrel, down $0.49.
  2. On Monday, July 1, crude oil futures rose as Egyptian protesters against President Mohammed Morsi continued to call for his resignation. The Egyptian military stated they would intervene if the political crisis in the country was not resolved within 48 hours. Instability in Egypt pushed futures higher due to concerns over access to the Suez Canal, a key oil choke point, and fears that instability in the nation could spill over to other nearby oil-rich countries. Nearly 3.8 MMbbl/d of crude passes through the Suez Canal and adjacent Suez-Mediterranean pipeline in Egypt. The Institute for Supply Management published data on Monday showing U.S. manufacturing activity increased from 49 in May to 50.9 in June, indicating expansion in U.S. manufacturing. The positive economic news sent crude futures higher, reaching an intra-day high of $98.28 per barrel. WTI futures closed at $97.99 per barrel, up $1.43.
  3. On Tuesday, crude futures continued to rise as Islamist supporters of President Morsi vowed to resist the military’s threat to oust him. Oil futures also gained due to labor tensions in Libya. Oil workers shut down several oil fields in the country as part of a negotiating strategy with management. The shutdowns are estimated to affect one-third of the 1.4 MMbbl/d output from the country. The Brent-WTI spread narrowed to under $5 per barrel, the lowest level in over two years as new pipeline capacity and rail shipments have helped to reduce bottlenecks at Cushing, OK. Crude futures closed up $1.61 at $99.60 per barrel on the NYMEX.
  4. On Wednesday, crude futures were supported by President Morsi’s vow to remain in office during a late Tuesday address to the nation, which put Egypt on a collision course for a political showdown. Later in the day, the Energy Information Administration (EIA) released data showing that crude stocks fell more than 10 MMbbl during the prior week, the highest one-week decline in nearly 13 years. The news pushed WTI crude above $100 per barrel for the first time since September 2012. The Brent-WTI spread narrowed to just $3.09 per barrel, the lowest level since December 2010, before rising to over $4.50 a barrel. WTI futures rose for the third consecutive day to close at $101.24 per barrel, up $1.64.
  5. On Thursday, the NYMEX was closed for the Fourth of July holiday in the United States.
  6. On Friday, crude futures rose as the Egyptian military ousted Mohammed Morsi from power and appointed Chief Justice Adly Mansour as interim president. A state of emergency was declared in the provinces of Suez and South Sinai, but oil traffic through the straits was not affected. Futures also received support as the Department of Commerce reported that non-farm payrolls increased by 195,000 in June, above analyst expectations. The unemployment rate remained at 7.6% in June, unchanged from May. WTI for August delivery rose $1.98 from Wednesday’s last price to close at $103.22 per barrel.
  7. On Monday, crude futures slid as a spokesperson for the Suez Canal Authority announced ship traffic in the Suez Canal was “normal” with 55 ships scheduled to pass through the channel. Meanwhile, fighting continued in Egypt with over 50 people dead in clashes between the military and supporters of ousted President Morsi. Several oil companies have removed their non-essential personnel from the country. In Libya, oilfields resumed normal operations as a workers’ sit-in was resolved. Libya exported an estimated 1.1 MMbbl/d of crude in June. Traders were also mindful of news about the derailment of a train carrying crude in Lac-Megantic Canada over the weekend, which reportedly killed at least five people, while many others remained missing (the death toll mounted by the week’s end). Later in the afternoon, futures remained just under $103 per barrel as investors watched the relative strength index rise above 70, indicating that crude futures may currently be overbought. Crude prices closed for the day at $103.14 per barrel, down $0.08.
  8. On Tuesday, crude futures increased slightly as China reported its June Consumer Price Index rose 2.7% from a year agao, above analyst expectations. Crude prices strengthened later in the day on speculation that EIA’s weekly oil stocks report would show another bullish draw on crude, driven by gasoline consumption over the Fourth of July holiday. However, in its monthly Short-Term Energy Outlook, the EIA stated it expects gasoline use to average 8.84 MMbbl/d in 2013, down over 0.5% from last year. WTI prices rose $0.39 to close at $103.53 per barrel.
  9. On Wednesday, OPEC reported demand for crude produced by member nations will fall 2.6% in 2014 to just 29.6 MMbbl/d. The decline in the group’s crude demand will occur even as global oil demand is expected to increase 1 MMbbl/d in 2014. Futures rose above $105 per barrel as the EIA released its weekly oil stocks report showing crude inventories falling 9.87 MMbbl—three times the expectation—to 373.9 MMbbl. Crude stockpiles have fallen 5.1% in the last two weeks as a result of strong demand. Stockpiles at Cushing, OK, fell 2.69 MMbbl to 47 MMbbl, which helped push the Brent-WTI spread under $2.00 for the first time since December 2010. Refineries were operating at 92.4% of capacity while crude production in the U.S. was up 1.8% to 7.4 MMbbl/d, the highest level since January 1992.
    Minutes from the Federal Open Market Committee showed Fed officials are waiting for an improvement in employment data before they consider revising the $85 million per month bond buying program. Expectations of continued easing by the Fed sent the dollar lower versus a basket of currencies which is bullish for dollar-denominated crude. WTI futures rose $2.99 to close at $106.52 per barrel, the highest since March 2012.
  10. On Thursday, futures received support as Egyptian prosecutors sought the arrest of Mohammed Badie, the spiritual leader of the Muslim Brotherhood, and nine additional Islamists on charges of inciting violence following the ouster of former President Morsi. Sporadic fighting continues in the country following the removal of Morsi from power. Later in the day, crude futures fell from 15-month highs as the International Energy Agency released its monthly oil market report, which showed non-OPEC oil production will grow 1.3 MMbbl/d in 2014, the fastest pace in 20 years. The growth in non-OPEC supply will narrowly outstrip a predicted 1.2 MMbbl/d increase in global crude demand. During the day the Brent-WTI spread fell to an intra-day low of $1.32 per barrel. The spread has fallen from a 2013 high of $23.18 per barrel in February. WTI futures closed down $1.61 at $104.91 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures closed up 3 cents after a volatile two-week period. Prices rose due to forecasts of above-average temperatures in the U.S., while an increase in natural gas inventory weighed on the prices.

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

  1. On Friday, June 28, natural gas futures fell as the 6–10 day forecast from the National Weather Service (NWS) showed little optimism for a surge in natural gas demand over the period. The 8–14 day report was similar, with only the West and upper portions of the country predicted to experience above-average temperatures. The bearish 95 Bcf build in natural gas inventories reported the prior day also triggered some selling ahead of the weekend. Natural gas futures closed down 1.7 cents at $3.565 per MMBtu, a new three-month low.
  2. On Monday, natural gas futures rebounded as revised forecasts from the NWS showed above-average temperatures blanketing the entire East Coast. The heat wave is expected to stimulate heavy cooling demand. Rising heat as the summer progresses should reduce the size of weekly injections of gas in storage. Natural gas futures closed up 1.2 cents at $3.577 per MMBtu.
  3. Tuesday trading saw natural gas futures rise on renewed buying and short-covering as the 8–14 day forecast showed the warm trend intensifying across much of the East Coast. With the Fourth of July holiday approaching and predictions of warmer temperatures ahead, downside was expected to be limited. Natural gas futures closed up 7.7 cents at $3.654 per MMBtu.
  4. On Wednesday, the EIA released its weekly natural gas inventory report showing a 72 Bcf build in working natural gas in storage, which is in line with analyst expectations. The build was close to the five-year average build of 71 Bcf for this period. Traders covering short positions ahead of the holiday helped push futures higher. Nuclear power plant outages were 5,800 MW during the week, down from 8,600 MW a year ago, but up from a five-year average of 5,000 MW. Natural gas futures rose for the third consecutive day to close at $3.690 per MMBtu, up 3.6 cents.
  5. On Thursday, the NYMEX was closed for the Fourth of July holiday in the United States.
  6. On Friday, natural gas futures fell 2% in light trading, driven by expectations of a large injection next week due to rising production. Total gas in storage was 2,605 Bcf, which is 16% below the same period last year and just 1% below the five-year average. Natural gas fell 7.3 cents from the Wednesday price to close at $3.617 per MMBtu.
  7. Monday’s natural gas trading was driven by revised weather forecasts from the NWS showing above-average heat in the West and upper half of the Unites States. Tropical Storm Chantal, then southeast of Barbados, was projected by computer models to move away from key natural gas-producing regions of the Gulf of Mexico. However, the storm was a reminder that the hurricane season could temporarily disrupt rising U.S. natural gas production. Henry Hub natural gas futures rose 12.4 cents to close at $3.741 per MMBtu.
  8. On Tuesday, natural gas futures fell as lingering concerns about Tropical Storm Chantal faded and the NWS released weather forecasts showing warm temperatures moderating in the major demand centers of the southern and southeastern portions of the country. Traders are also anticipating a bearishly large inventory build compared to just 29 Bcf a year ago. Natural gas futures closed down 8.4 cents (2.2%) at $3.657 per MMBtu.
  9. On Wednesday, natural gas futures rose during light trading ahead of the release of EIA’s weekly inventory report. Prices were also supported by NWS’s weather forecasts, which showed warm temperatures intensifying on both coasts of the U.S. Natural gas futures closed up 2.3 cents at $3.68 per MMBtu.
  10. On Thursday, natural gas futures fell as the EIA reported a bearish 82 Bcf build in natural gas inventories, which rose to 2,687 Bcf. The build was in line with analyst expectations, but was above the five-year average injection and last year’s 29 Bcf during the same week. Current inventories are 14% below last year’s level, but just 8 Bcf (0.8%) below the five-year average. Natural gas futures closed down 6.7 cents at $3.613 per MMBtu.

Futures curve

March 2014 WTI futures are 7.7% 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 8% 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) 16.12 15.7 2.64%
Gasoline Demand (MMBPD) 9.3 8.89 4.55%
Distillate Demand (MMBPD) 3.84 3.89 -1.31%
Production (MMBPD) 7.4 7.26 1.93%
Imports (MMBPD) 7.53 8.3 -9.32%
Stocks (million barrels) 373.9 394.1 -5.13%
Rotary Rig Count 1,395 1,405 -0.71%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,687 2,533 6.08%
Rotary Rig Count 355 349 1.72%
Horizontal Rig Count 1,068 1,079 -1.02%
Consumption (Bcf)* 1,946 (Apr 13) 2,508 (Mar 13) -22.43%
Gross Withdrawals (Bcf)* 2,481 (Apr 13) 2,549 (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.

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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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As used in this document, ‘Deloitte’ means Deloitte LLP (and its subsidiaries). Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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