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Weekly Oil & Gas Market Highlights: May 15, 2014

Deloitte Center for Energy Solutions publication

Key Oil & Gas price indicators

Front Month Futures May 15,
2014
May 08,
2014
% Change
Oil – WTI
(USD per barrel)
$101.50 $100.26 1.2%
Oil – Western Canadian Select*
(USD per barrel)
$82.60 $80.26 2.9%
Oil – Brent
(USD per barrel)
$109.09 $108.04 1.0%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.47 $4.57 -2.3%

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 crude futures rose over 1% this week driven by speculation of additional monetary stimulus in China and discussion of the U.S. potentially lifting its crude exports ban. Persisting tensions in Ukraine also added to the upside while rising U.S. crude inventories maintained downward pressure on prices.

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

  1. Last Friday, after rising initially during London trading, crude futures settled lower due to rising U.S. crude supplies. Earlier in the day, crude prices rose as Pro-Russian separatists in eastern Ukraine ignored Russian President Vladimir Putin’s call to postpone a vote on secession scheduled for Sunday. The Ukrainian government also rejected Putin’s demands to end its military operations against separatists in the region. Western-backed sanctions imposed on Russia thus far have only targeted individuals or businesses, with no effect on Russia’s energy industry at large. Crude futures reversed course later in the day as analysts eyed crude stocks near all-time highs as well as rising stocks of gasoline and distillates. Concerns over rising inventories and a stronger dollar helped send futures down before the close. WTI crude futures fell $0.27 to close at $99.99 per barrel.
  2. On Monday, crude futures rose as pro-Russian separatists declared victory in a referendum on eastern Ukraine's secession held over the weekend. German Chancellor Angel Merkel and French President Francois Hollande warned Russia about the possibility of further sanctions. The EU met on Monday to discuss intensifying the sanctions against Russia. Thus far, Western nations have avoided so-called “Stage 3” sanctions that would affect Russia’s energy industry. Markets were slightly mollified by assurances from Saudi Arabia that OPEC would be able to cover any shortfalls if energy-related sanctions were imposed on Russia. Markets also looked ahead to discussions between the International Atomic Energy Agency and Iranian leaders later this week to reach a final deal on Iran’s nuclear program before the expiration of an interim agreement on July 1 of this year. An agreement between the parties has the potential to return nearly 1 MMbbl of crude oil to the market. WTI crude futures for June delivery closed up $0.60 at $100.59 per barrel.
  3. On Tuesday, crude futures rose during Asian trading on speculation around additional monetary stimulus in China. The largest Asian economy reported a marginal fall in its industrial production from 8.8% in March to 8.7% in April while retail sales fell to 11.9% in April from 12.2% in March. The disappointing data increased speculation among analysts that the Chinese government may need to undertake further monetary and policy easing measures later in the year in order to spur economic growth, which would be bullish for crude demand. During New York trading, crude futures rose sharply following statements by Energy Secretary Ernie Moniz that the U.S. is considering lifting a ban imposed in the 1970s on exporting U.S. oil. U.S. crude production has risen by nearly 2.5 MMbbl in the past five years driven by shale production. However, most of the oil produced is light, sweet oil while U.S. refineries are configured to refine heavy, sour crudes. WTI crude futures climbed $1.11 to close at $101.70 per barrel.
  4. On Wednesday, WTI crude futures rose as the Energy Information Administration (EIA) released its weekly oil data, which showed crude stockpiles at Cushing fell by 592,000 barrels to 23.4 MMbbl, the lowest level since December 2008. Traders broadly shrugged off the total U.S. crude inventories data, which rose by 947,000 barrels to 398.5 MMbbl. Gasoline demand rose to 9.19 MMbbl while gasoline inventories fell 772,000 barrels to 212.4 MMbbl. WTI crude futures rose $0.67 to close at $102.37 per barrel.
  5. On Thursday, crude futures traded largely sideways as Ukrainian forces continued military operations against pro-Russian separatist forces. Russian Foreign Minister Sergei Lavrov said it would be impossible to hold a legitimate vote on secession under such circumstances. Meanwhile, the Ukrainian government held national unity talks in Kiev in order to ease tensions before the May 25 presidential elections. Russian separatist groups were excluded from the discussion. Crude futures fell during New York trading as investors eyed rising crude inventories in the U.S., driven by increased domestic production. U.S. crude production increased by 78,000 barrels in EIA’s latest data, to 8.43 MMbbl. Crude producers are hopeful the U.S. government may reconsider an export ban on raw crude. WTI crude futures fell $0.87 to close for the day at $101.50 per barrel.

Natural gas prices

Henry Hub natural gas futures fell over 2% correcting for the seasonal change. Any lingering heating demand due to the extended winter is expected to ease as above-average temperatures expand across the United States. However, a lower-than-expected natural gas injection gave a late week upside to prices.

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

  1. Last Friday, natural gas futures fell as revised weather forecasts from the National Weather Service (NWS) called for above-average temperatures for most of the western part of the country and the eastern coastline. Warmer temperatures are expected to ease lingering heating demand from an extended cold season this year. A lackluster demand profile for this shoulder season is expected to help boost gas injections, which is bearish for gas futures. Henry Hub natural gas futures closed down 4.1 cents at $4.531 per MMBtu.
  2. On Monday, natural gas futures fell as investors eyed predictions of average temperatures across the Midwest by private forecasters. Expectations of strong injections driven by mild temperatures limited the upside. Henry Hub natural gas futures closed down 9.7 cents at $4.434 per MMBtu.
  3. On Tuesday, natural gas futures continued the falling trend as revised weather forecasts from the NWS showed above-average temperatures across most of the Northeast and Midwest in the 6–10 day forecast. The area of above-average temperatures is expected to rise in the 8–14 day forecast. Henry Hub natural gas futures closed down 7.6 cents at $4.358 per MMBtu.
  4. On Wednesday, natural gas futures rebounded slightly as some investors believed they had been oversold in previous sessions. Analysts expected to see an injection of just under 100 Bcf in the week’s EIA data. However, bulls believed rising weather-driven demand from the power sector last week would trim this week’s reported injection. Henry Hub natural gas futures closed up 0.9 cents at $4.367 per MMBtu.
  5. On Thursday, natural gas futures surged as the EIA released its weekly natural data. The data showed that natural gas inventories rose by 97 Bcf last week, which was slightly below analyst expectations. The injection was just below last year’s figure of 98 Bcf, but above the five-year average injection of 82 Bcf. However, this week’s injection was 5 Bcf less than the minimum needed to sufficiently refill storage level before the next heating season. Producers will need to exceed the five-year average injection by 20–35 Bcf each week to accumulate adequate supplies for the winter. Henry Hub natural gas futures rose 10.2 cents to close at $4.469 per MMBtu.

Futures curve

The forward curve for WTI crude continues to be in backwardation, with December 2014 WTI futures nearly 4.7% lower than near-month (June) futures due to rising North American crude production and stockpiles. The EIA expects U.S. crude production to average 8.37 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 (June) prices are 3% 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) 15.67 15.90 -1.45%
Gasoline Demand (MMBPD) 9.19 8.72 5.39%
Distillate Demand (MMBPD) 4.27 4.33 -1.39%
Production (MMBPD) 8.43 8.35 0.96%
Imports (MMBPD) 7.13 6.89 3.48%
Stocks (million barrels) 398.5 397.6 0.23%
Rotary Rig Count 1,528 1,527 0.07%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,160 1,055 9.95%
Rotary Rig Count 323 323 NC
Horizontal Rig Count 1,243 1,247 -0.32%
Consumption (Bcf)* 2,757 (Feb 14) 3,216 (Jan 14) -14.27%
Gross Withdrawals (Bcf)* 2,381 (Feb 14) 2,641 (Jan 14) -9.84%
Canadian Imports (Bcf)* 242.9 (Feb 14) 286.6 (Jan 14) -15.24%
LNG Imports (Bcf)* 3.8 (Feb 14) 8.5 (Jan 14) -55.29%

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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