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Weekly Oil & Gas Market Highlights: September 19, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures September 19, 2013 September 12, 2013 % Change
Oil – WTI
(USD per barrel)
$106.39 $108.60 -2.0%
Oil – Western Canadian Select*
(USD per barrel)
$80.14 $82.94 -3.4%
Oil – Brent
(USD per barrel)
$108.76 $112.63 -3.4%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.72 $3.64 2.3%

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 fell 2% this week as talks between the U.S. and Russia led to a diplomatic solution to the Syrian issue and reduced tensions in the Gulf region. While positive U.S. inventory data temporarily boosted prices, a rise in Libyan crude output exerted downward pressure.

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

  1. Last Friday, crude futures fell as the U.S. and Russia held talks in Geneva to discuss a diplomatic solution to the Syrian issue. Syria plans to surrender its chemical weapons to international control in order to avert a U.S. strike against the country. U.S. Secretary of State John Kerry reported initial talks had been "constructive," but gave no indication if a breakthrough had been achieved or was near. Syrian President Bashar Al-Assad said the U.S. must give up plans of a military strike and stop arming rebel factions within the country as part of any deal. In Libya, the state-owned National Oil Corporation declared force majeure on crude exports from the Mellitah, Hariga and Zawiya ports due to continued labor strikes in the country. Crude futures also fell on speculation by traders that the Federal Reserve would announce a plan to begin winding down its $85 billion per month bond buying program when it meets on September 17–18. WTI crude futures closed down $0.39 at $108.21 per barrel.
  2. On Monday, crude futures fell as it appeared some of the geopolitical risk premium in the oil price may have worn off due to a U.S. – Russian accord reached over the weekend in Geneva. The accord included a framework for locating and removing Syria's chemical weapons stockpiles while giving Bashar Al-Assad a week to submit an inventory of the country’s chemical weapons arsenal before initial inspections begin by November. Attention turned to the United Nations, which will soon release the report of the inspection team tasked with investigating the August 21 chemical weapons attack near Damascus. U.S. Secretary of State John Kerry and top diplomats from France and the U.K. called on the United Nations to pass a tough resolution calling for the elimination of Syria's chemical weapons. In Libya, oil production resumed at the El Feel and Sharara fields, which produce nearly 450,000 bbl/d combined, or about 25% of the country’s 1.6 MMbbl/d capacity. Last week, Libya's Deputy Oil Minister Omar Shakmak said production had fallen to 250,000 bbl/d from a total capacity of 1.6 MMbbl/d due to recent strikes. Crude futures rose as Lawrence Summers withdrew his name from consideration for the next chairman of the Federal Reserve. The crude market responded positively to the news since Summers was expected to rein in the Fed's bond-buying program more aggressively than rival Janet Yellen. Economists expected the Fed would reduce its bond buying program during this week’s meeting by $10 billion per month. WTI crude futures closed down $1.62 at $106.59 per barrel on the NYMEX.
  3. On Tuesday, crude futures fell for a third day as markets were calmed by the agreement between the U.S. and Russia to remove Syria’s chemical weapons. Secretary of State Kerry clarified there is no conflict between working through international inspectors to remove the chemical weapons and the U.S. administration's goal of removing Assad from power. Separately, the report from the U.N. weapons inspectors reported "clear and convincing evidence" that chemical weapons had been used near Damascus on August 21. In Libya, force majeure was lifted at the ports of Mellitah and Zawiya. In Iran, President Hasan Rohani stated Iran would be willing to decommission its Fordo uranium enrichment facility if Western-backed sanctions are reduced. WTI crude futures closed down $1.17 at $105.42 per barrel.
  4. On Wednesday, crude futures were flat-to-low during early trading as Libya's National Oil Corporation announced it is attempting to raise the country's oil production this week to 0.70 MMbbl/d as labor strikes ease in the country. Crude futures spiked as the Energy Information Administration (EIA) reported crude inventories fell 4.37 MMbbl/d to 355.6 MMbbl, which was above analyst expectations. Crude supplies are currently at the lowest levels in 17 months. Futures received a further boost later in the day as the Federal Open Market Committee announced it would continue its $85 billion per month bond buying program. Crude futures rose 2.5% on the news. WTI crude futures closed up $2.65 at $108.07 per barrel.
  5. On Thursday, crude fell as Ibrahim Al Awami, the director of Measurement for the Libyan oil ministry, announced the country’s oil production would rise above 0.70 MMbbl/d. Oil exports from the country gradually rose throughout the week as export terminals at Brega, Zawiya and Mellitah resumed operations. Some of the geopolitical risk premium may have come out of the crude price as Syrian President Assad stated during an interview that complying with the disclosure and inspection conditions of the Chemical Weapons Convention would be “no problem, we can do it tomorrow.” Tensions between the West and Iran also seemed to be easing as Iranian President Hassan Rohani stated his country would not develop nuclear weapons. WTI crude futures closed for the day at $106.39 per barrel, down $1.68.

Natural gas prices

U.S. Henry Hub natural gas futures rose over 2% this week supported by a late-summer heat wave and lower-than-average inventory build. However, concerns over growing natural gas production and the onset of shoulder season limited the gain in prices.

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

  1. Last Friday, natural gas futures rose, supported by continued above-average temperatures in the Midwest. The National Hurricane Center (NHC) announced a tropical depression in the Gulf of Mexico had been upgraded to Tropical Storm Ingrid, but was tracking toward Mexico's east coast, away from gas production facilities in the Gulf of Mexico. Baker Hughes reported the gas-directed rig count rose by 7 rigs to 401. The rig count has been rising from an 18-year low of just 349 rigs in June as a result of rising natural gas prices. Natural gas futures closed up 3.9 cents at $3.677 per MMBtu.
  2. On Monday, natural gas futures fell during early trading as Tropical Storm Ingrid weakened as it made landfall in northern Mexico. Natural gas production from the Gulf of Mexico accounts for ~5% of current U.S. natural gas production. However, futures rose later during the day as Citi Futures Perspective estimated a net injection of 62 Bcf, which is below the five-year average gain of 74 Bcf, in EIA’s inventory report this week. Further, prices were supported by revised weather forecasts which showed above-normal temperatures in the central U.S. region. Natural gas futures fell 6.1 cents to close at $3.738 per MMBtu.
  3. On Tuesday, natural gas futures rose on expectations current warm temperatures in the Midwest would result in a bullish natural gas storage report from the EIA later this week. Traders also saw support from the flooding in Colorado, which had shut in production in the region. The flooding helped spark speculation that this week’s inventory report would be the first since April to show an injection below year-ago levels. Nuclear power plants are also undergoing seasonal maintenance, which is expected to boost natural gas demand in order to make up for lost generation capacity. Natural gas futures closed up 0.7 cents at $3.745 per MMBtu.
  4. On Wednesday, natural gas futures fell as the NWS’s 6–10 day forecast showed mild weather across the East Coast and in the West. The NHC said a large area of low pressure across the Yucatan peninsula had an 80% chance of developing into a tropical storm within the next five days. The system could be pushed further north into the Gulf of Mexico and could make landfall between Louisiana and Texas. Natural gas futures fell 3.2 cents to settle at $3.713 per MMBtu.
  5. On Thursday, natural gas futures rose as the EIA reported working gas in storage rose by just 46 Bcf to 3,299 Bcf. Higher-than-expected demand from power and utilities contributed to the low gas injection this week. The injection, which was lower than analyst expectations, was below both the year-ago injection of 61 Bcf and the five-year average injection for this time of year of 74 Bcf. Natural gas futures have risen >20% over the past two weeks driven by a late summer heat wave in the Midwest. However, prices fell later in the day as traders grew concerned about the near-record levels of gas production, the onset of shoulder season and expectations of higher inventory build in coming weeks. Natural gas futures closed for the day at $3.720 per MMBtu, up 0.7 cents.

Futures curve

The forward curve for WTI crude is in backwardation, with June 2014 WTI futures 8.2% lower than near-month (October) futures due to growing North American supply and concerns over a slowdown in global economic growth. However, June 2014 natural gas futures are at a premium of 7.2% over October 2013 futures due to expectations of moderate supply growth and higher demand from commercial and residential sectors in 2014.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 16.11 15.90 1.32%
Gasoline Demand (MMBPD) 9.03 8.61 4.88%
Distillate Demand (MMBPD) 4.05 3.52 15.06%
Production (MMBPD) 7.83 7.74 1.16%
Imports (MMBPD) 7.58 8.01 -5.37%
Stocks (million barrels) 355.6 360.0 -1.22%
Rotary Rig Count 1,361 1,365 -0.29%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,299 3,253 1.41%
Rotary Rig Count 401 394 1.78%
Horizontal Rig Count 1,076 1,075 0.09%
Consumption (Bcf)* 1,726 (Jun 13) 1,740 (May 13) -0.80%
Gross Withdrawals (Bcf)* 2,443 (Jun 13) 2,540 (May 13) -3.82%
Canadian Imports (Bcf)* 228.9 (Jun 13) 229.0 (May 13) -0.04%
LNG Imports (Bcf)* 8.1 (Jun 13) 5.6 (May 13) 44.64%

* 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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