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Weekly Oil & Gas Market Highlights: March 21, 2013

Deloitte Center for Energy Solutions publication

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Please be advised that we will not be publishing the Oil & Gas Market Highlights next Friday March 15, 2013. We will resume with a two-week summary on March 22, 2013.

Key Oil & Gas price indicators

Front Month Futures (August) March 21, 2013 March 7, 2012 % Change
Oil – WTI
(USD per barrel)
$92.45 $91.56 1.0%
Oil – Brent
(USD per barrel)
$107.47 $111.15 -3.3%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.94 $3.58 9.9%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude oil futures closed up 1% after seesawing over the past two weeks. Prices were supported by positive economic data from the U.S. and strengthening of the dollar against the euro. However, concerns over economic recovery in the Eurozone exerted downward pressure.

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

  1. Crude futures rose on Friday, March 8, as operations on the Brent Pipeline System in the North Sea approached 80,000 barrels per day following a five-day shut-in due to a leak. Futures also rose during New York trading as the U.S. Department of Labor (DOL) reported that U.S. employment rose by 236,000 last month, which is higher than analyst expectations. The U.S. unemployment rate fell from 7.9% to 7.7%, signaling that the U.S. economy continues to improve. Futures rose $0.39 to close at $91.95 per barrel.
  2. On the following Monday, crude futures fell 1.2% as China announced that industrial output data missed analyst expectations with a YoY growth of 9.9 percent in January and February, the country’s weakest figure since 2009. Later in the day, futures gained along with the broader market. The S&P 500 rose to 1,556.21 and the Dow Jones Industrial Average rallied 0.3% to a new all-time high of 14,441.76 led by bank equities. The rise in equities helped oil rebound after the disappointing data from China. Futures closed up $0.11 at $92.06 per barrel.
  3. Crude futures fell on Tuesday as China reported that oil refining volumes fell 2% to 9.9 MMbbl/d last month, the lowest since October 2012. Crude futures began rising later in the day as the dollar strengthened versus the euro. However, prices fell from a two-week high on expectations that Energy Information Administration (EIA) data later in the week would show an eighth consecutive rise in crude stocks, which is bearish for crude futures. Futures closed at $92.54 per barrel, up $0.48.
  4. On Wednesday, the International Energy Agency released its monthly Oil Market Report, which stated that oil demand growth will continue to be low as a result of prevailing high oil prices and weak economic growth. Oil futures fell following the release of the report. Futures began rising, however, following the news that U.S. retail sales in February rose 1.1%, the fourth straight month of increases, which boosted optimism about the pace of economic recovery in the world’s largest oil consuming nation. WTI crude futures fell later in the day as the EIA released data showing that crude stocks rose 2.62 MMbbl to 384 MMbbl for the week ending March 8. The figure indicated the highest level of crude stocks during the month of March since the Department of Energy (DOE) started maintaining a record in 1982. Futures closed for the day at $92.52 per barrel, down $0.02.
  5. On Thursday, crude futures fell as Oil Movements reported that crude tanker traffic from OPEC nations (excluding Angola and Ecuador) were expected to increase by 0.3 MMbbl/d to 23.75 MMbbl/d during March. However, futures rose as the DOL announced that new unemployment claims fell by 10,000 to 332,000 the prior week. Analysts had expected an increase in the figure. Crude futures for April delivery rose $0.51 to close at $93.03 per barrel.
  6. Last Friday, crude futures rose as tensions with Iran intensified. The U.S. Department of Defense reported that an Iranian fighter jet approached a U.S. surveillance drone, which prompted a nearby U.S. jet to warn the Iranian plane away from the drone. Futures rose as the dollar fell versus the euro on DOL data that showed U.S. consumer prices had increased 2% YoY last month, slightly above the 1.6% annualized increase reported in January. Traders believe that the figure indicates inflation may be under control, which would allow the Federal Reserve to continue its current monetary stimulus program, which is bullish for crude prices. WTI crude futures for April delivery rose $0.42 to close at $93.45 per barrel.
  7. On Monday, crude futures fell as European finance ministers made a deal with Cyprus that would force depositors to share the burden of an ~$7.5 billion EU bailout package. Depositors would be taxed up to 10% of their deposits for accounts over €100,000. Crude futures were down 1.8% on the news. The news rattled the market and increased concerns about a possible bank run. However, futures began to rebound as finance ministers indicated that Cyprus could ease the cost of the levy to its depositors. Cyprus delayed a vote on the measure. Crude futures closed at $93.74 per barrel, up $0.29.
  8. On Tuesday, futures fell as Cyprus prepared to vote on a bank levy on deposits to help pay for the planned EU bailout. Although EU finance ministers continued to apply pressure on Cyprus, they indicated flexibility on the size of the levy. Traders are concerned that by raiding depositor accounts, bank runs are more likely to occur in the rest of Europe over depositor fears about the integrity of their deposits. Meanwhile pipeline reversals began to relieve supplies at the Cushing, OK oil hub. Operators of the Longhorn pipeline reversed the ~135,000 bbl/d line to bring crude to the Gulf Coast. Stocks at Cushing are 49.3 MMbbl, down from a record high of 51.9 MMbbl reached in January this year. Crude futures closed down $1.58 at $92.16 per barrel.
  9. On Wednesday, crude futures rose as the ECB looked likely to delay a vote on bailout funds for Cyprus, which included a provision for a bank levy on Cypriot deposits. The delay will give the government and the ECB time to negotiate a new deal after the country rejected the initial proposal. Futures continued to rise later in the day, as the Federal Reserve pledged to maintain its current $85 billion per month stimulus consisting of $45 billion per month purchases of U.S. treasuries and $40 billion of mortgage-backed securities to spur growth in the U.S. economy. Crude futures for April delivery expired at $93.50 per barrel, up $0.8.
  10. Crude futures for May delivery fell on Thursday, driven by concerns over the Cyprus bailout package. Cypriot President Nicos Anastasiades is working to draft a more acceptable bailout proposal while the ECB gave the country a deadline of March 25 to present a proposal or get cut off from access to emergency funds. The Cypriot bailout and associated bank levy have raised concerns among traders that the European economic crisis is far from over and may get worse before it gets better. Further putting pressure on prices, Markit Economics released a survey of the Purchasing Managers’ Index in Europe, which showed that the composite index of services and manufacturing in Europe fell to 46.5 in March from 47.9 in February. The U.S. DOL also released its weekly unemployment claims data, which showed an increase of 2,000 applications to 336,000, which is bearish but less than what analysts had expected. Crude futures closed for the day at $92.45, down $0.51.

Natural gas prices

U.S. Henry Hub natural gas futures rose steadily over the two-week period to close at $3.94 per MMBtu, up ~10%. Expectations of cooler weather throughout the U.S. and higher-than-expected inventory withdrawals, despite nearing the end of the heating season, boosted natural gas prices.

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

  1. On Friday, March 8, natural gas futures rose to a six-week high as the 6–10 day weather forecast from the National Weather Service (NWS) called for below-average temperatures across the East Coast and Great Lakes regions of the U.S. Below-average temperatures have helped push natural gas prices up over 15% during the prior three weeks of trading. The gas-directed rig count reported by Baker Hughes fell by 13 to a 14-year low of 407 rigs while natural gas futures closed up 4.7 cents (1.3%) at $3.629 per MMBtu.
  2. On Monday, natural gas futures rose as traders viewed current below-average temperatures as bullish for weekly inventory withdrawals, which may put end-of-season gas in storage below 2,000 Bcf. However, the revised 6–10 day forecast from the NWS showed only the Northwest and a part of New England with below-average temperatures and the rest of the country experiencing either average or above-average temperatures. Nuclear power plant outages were 17% of U.S. capacity, below last year’s outage of 19,600 MW, but above the five-year average. Henry Hub futures closed up 2 cents at $3.649 per MMBtu.
  3. On Tuesday, natural gas futures closed marginally lower at $3.645 per MMBtu on profit-taking as futures rose 17% over the past six weeks from a low of $3.125 per MMBtu. NWS’s 6–10 day forecast lent some support, as it showed above-average temperatures in the Southeast and parts of Florida. However, the 8–14 day forecast showed below-average to average temperatures across the entire country. A further sell-off is being held at bay by expectations of strong draws on gas in storage before the end of the heating season even as power generators favor lower-priced coal over natural gas for heating demand.
  4. On Wednesday, Henry Hub natural gas futures rose and briefly touched a three-month high of $3.696 per MMBtu on expectations of cold weather for the remainder of the week and the following week. The cooler weather is expected to keep gas demand elevated as the 8–14 day forecast showed above-average temperatures retreating to just the tip of Florida. NWS’s 6–10 day forecast showed below-average temperatures in the Northwest, West, and New England. Natural gas futures closed up 3.5 cents at $3.680 per MMBtu.
  5. On Thursday, natural gas futures rose as high as $3.824 per MMBtu, the highest level since November 2012, as the EIA reported additional gas withdrawal data that exceeded analyst expectations. The natural gas in storage fell 145 Bcf, much higher than the 66 Bcf withdrawal during the same period last year and the five-year average withdrawal of 74 Bcf. It was the fourth weekly draw in a row that exceeded analyst expectations even as natural gas consumption fell by 11.5% last week. Natural gas in storage stood at 1,938 Bcf, down 19% YoY. Analysts revised downward predictions for end-of-heating-season storage levels as a result of the continued stronger-than-expected gas withdrawals. Henry Hub natural gas futures closed up 13.2 cents at $3.812 per MMBtu.
  6. Last Friday, natural gas futures rose for the third straight day, driven by supportive storage draws and expectations of colder weather over the near term. The 6–10 day and 8–14 day forecasts from the NWS both called for below-average to average temperatures across most of the country. The forecasts were expected to help maintain strong gas storage withdrawals over the next few weeks, which is bullish for gas prices. Baker Hughes data revealed a sharp increase in the natural gas-directed rig count, which rose by 24 rigs to 431. Natural gas futures closed up 6 cents at $3.872 per MMBtu.
  7. On Monday, natural gas futures edged up 1 cent on continued momentum from recent storage withdrawals and below-average temperatures. The NWS forecasts continued to support prices; however, some traders believe that gas futures are currently overbought and due for a correction. Futures closed at $3.882 per MMBtu, a 17-month high.
  8. On Tuesday, natural gas futures continued their recent bull run, rising 10% in the past five sessions, spurred by an increase in open interest as traders begin to take long positions driven by current cold weather. Open interest currently stands at 1,320,785 as end-of-season weather forecasts continue to show lingering cold weather that is expected to keep storage draw elevated. NWS’s 6–10 and 8–14 day forecasts show no areas of the country with above-average temperatures and the eastern half of the country with temperatures well below average in the near term. Futures closed up 8.7 cents at $3.969 per MMBtu.
  9. On Wednesday, natural gas futures ended down for the first time in five sessions as futures encountered resistance near the $4 per MMBtu mark. Some investors booked profits after a 25% increase in futures over the past month, while others sought to limit exposure ahead of EIA’s weekly natural gas report. Bulls are expecting another strong draw due to recent cold temperatures, but further upside could be limited as the end of the heating season is rapidly approaching. Futures closed down 0.9 cents at $3.96 per MMBtu.
  10. On Thursday, natural gas futures closed down after briefly crossing the $4 per MMBtu mark, an 18-month high. Some analysts believe that at $4 per MMBtu, natural gas demand will start to decline as utilities begin to more heavily favor coal over gas. EIA’s weekly natural gas data showed a draw of 62 Bcf, which matched last year’s withdrawal, but was below analyst expectations, which led traders to view it bearishly. The draw was above the five-year average draw of 26 Bcf for this time of year. Current gas in storage stands at 1,876 Bcf, which is down 21% YoY, but 9% above the five-year average. The NWS continues to show below-average to average temperatures across the entire country in the 6–10 day forecast. However, in the 8–10 day forecast, above-average temperatures have started emerging in the northwest portion of the country. Futures closed down 2.5 cents at $3.935 per MMBtu.

Futures curve

December 2013 WTI futures are 0.7% lower than current prices due to growing North American supply and weak demand growth in the U.S. However, the November 2013 natural gas futures are at a premium of 4.7% to near-month (April) 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) 14.51 14.03 3.44%
Gasoline Demand (MMBPD) 8.32 8.36 -0.48%
Distillate Demand (MMBPD) 3.58 3.86 -7.18%
Production (MMBPD) 7.15 7.09 0.80%
Imports (MMBPD) 7.32 7.31 0.12%
Stocks (million barrels) 382.7 381.4 0.34%
Rotary Rig Count 1,341 1,333 0.60%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,876 2,083 -9.94%
Rotary Rig Count 431 420 2.62%
Horizontal Rig Count 1,131 1,141 -0.88%
Consumption (Bcf)* 2,472 (Dec 12) 2,154 (Nov 12) 14.80%
Gross Withdrawals (Bcf)* 2,560 (Dec 12) 2,496 (Nov 12) 2.55%
Canadian Imports (Bcf)* 234 (Dec 12) 219 (Nov 12) 6.70%
LNG Imports (Bcf)* 16.9 (Dec 12) 14.2 (Nov 12) 18.83%

Notes:
* 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

Learn more

Deloitte’s new 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 new 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 new 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.

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May 21-22, 2013
Deloitte Energy Conference – Washington, DC
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November 19, 2013
Deloitte Oil & Gas Conference – Houston, TX
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