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Weekly Oil & Gas Market Highlights: February 6, 2014

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures February 6,
2014
January 30,
2014
% Change
Oil – WTI
(USD per barrel)
$97.84 $98.23 -0.4%
Oil – Western Canadian Select*
(USD per barrel)
$76.09 $78.98 -3.7%
Oil – Brent
(USD per barrel)
$107.19 $107.95 -0.7%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$4.93 $5.01 -1.6%

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 ended marginally lower this week due to weak manufacturing numbers in the U.S. and China and concerns over energy demand in developing economies. Prices partially received support from higher distillate demand and the fall in unemployment claims in the United States.

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

  1. Last Thursday, crude futures fell from a 2014 high as investors grew concerned that developing economies, which account for most of the growth in crude demand, may be negatively affected by the curtailment of the Federal Reserve’s bond-buying program. In January, worldwide equities dropped by nearly $1.8 trillion as global equity investors recalled capital that had been invested in emerging economies in search of higher returns. Crude futures fell further later in the day as Thomson Reuters/University of Michigan released data showing U.S. consumer confidence fell in January to 81.2 from 82.5 in December. However, losses during the day were partly mitigated by cold weather across much of the U.S. that has helped drive increased diesel demand. Diesel stockpiles in the mid-Atlantic are at the lowest levels since 2008 fueling which, in turn, is expected to increase production of the fuel in refineries, boosting crude demand. WTI crude futures for March delivery fell $0.74 to close at $97.49 per barrel on the NYMEX.
  2. On Monday, crude futures fell during Asian trading as China’s National Bureau of Statistics reported that China’s official Purchasing Manager’s Index (PMI) fell from 51 in December to 50.5 in January. The decline fueled speculation that the Chinese government’s efforts to rein in the estimated $6 trillion shadow banking industry will slow down economic growth in the country. During New York trading, futures fell as the Institute for Supply Management reported that the U.S. PMI fell from 56.5 in December to 51.3 in January. Bulls were looking for upside in this week’s petroleum data from the Energy Information Administration (EIA) which was expected to show a drawdown in stockpiles at Cushing due to the recent opening of the southern leg of the Keystone XL pipeline. WTI crude futures for March delivery fell $1.06 to close at $96.43 per barrel.
  3. On Tuesday, WTI crude futures fell marginally during London trading on concerns over tightening credit conditions in China, which has the potential to limit crude demand growth in the country. The Brent premium to WTI narrowed to $8.94 per barrel, the narrowest spread since mid-October. During New York trading, WTI futures rebounded as investors speculated that inventories of distillates, including diesel and heating oil, would decline for a fourth week in EIA’s data as a result of current cold conditions across much of the country. WTI crude futures rose $0.76 to close at $97.19 per barrel on the NYMEX.
  4. On Wednesday, crude futures rose during Asian trading as Reuters released news about the U.S. government’s authorization for limited re-exports of foreign crude to Europe. The information, obtained through a Freedom of Information Act request, showed that the U.S. Department of Commerce has granted two licenses to re-export imported crude to the United Kingdom and two additional licenses to export to Italy. Crude futures also rose later in the day as the EIA released its weekly petroleum data showing distillate demand rose 6.1% over the preceding four weeks, to 3.99 MMbbl/d, while supplies of distillates fell 2.36 MMbbl to 113.8 MMbbl. Crude inventories rose 440,000 barrels to 328.1 MMbbl. However, supplies at Cushing fell 1.55 MMbbl to 40.3 MMbbl, the largest decline since August. The decline at Cushing was attributed to the opening of the southern leg of the Keystone XL pipeline moving crude from Cushing to Gulf Coast refineries. WTI crude futures rose $0.19 to close at $97.38 per barrel.
  5. Crude futures rose during London trading on Thursday as European Central Bank (ECB) President, Mario Draghi, announced the ECB would leave interest rates unchanged until at least next month. The euro rose over half a percent on the news. A stronger euro versus the dollar is bullish for dollar-denominated crude. Crude prices also climbed later in the day as the Department of Labor reported new jobless claims fell by 20,000 to 331,000 over the prior week. Analysts had expected new claims to be higher. WTI crude futures for March delivery closed at $97.84 per barrel, up $0.46.

Natural gas prices

Henry Hub natural gas futures fell 1.6% this week largely due to profit booking by traders after a three-week rally in prices and weaker-than-expected inventory withdrawals. During the week, prices crossed the $5 mark on expectations of colder-than-average temperatures through mid-February.

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

  1. Last Thursday, natural gas futures fell for a second day in a row as private forecasters released data showing the current cold conditions were expected to ease in the 6–10 day forecast. Temperatures were expected to be seasonal to above-average across the East Coast and Texas over the period. Baker Hughes rig data showed natural-gas directed rigs increasing by 2 rigs to 358 this week, down 16% from last year. Henry Hub natural gas futures closed down 6.8 cents at $4.943 per MMBtu.
  2. On Monday, natural gas futures slipped over 12 cents during early trading as traders booked profits anticipating the end of winter season. However, futures partially regained later in the day as the National Weather Service released revised forecasts showing below-average temperatures across most of the U.S. in the 6–10 day forecast. The 8–14 day forecast showed a similar trend with the eastern portion of the country experiencing below-average temperatures. Henry Hub natural gas futures ended the day at $4.905 per MMBtu, down 3.8 cents.
  3. On Tuesday, natural gas futures climbed higher as private weather forecasters predicted below-average temperatures across most of the lower-48 states through February 13. According to private data, January 2014 was the coldest first month of the year since 1994. Henry Hub natural gas futures broke the $5 barrier rising 47 cents to close at $5.375 per MMBtu.
  4. On Wednesday, natural gas futures fell from Tuesday’s highs as investors booked profits.  Natural gas prices have been volatile over the past few weeks as extended winter temperatures have been driving the natural-gas derived heating demand. Nearly half of U.S. homes use natural gas for heating. Henry Hub natural gas futures closed down 34.5 cents at $5.03 per MMBtu.
  5. Natural gas futures fell on Thursday as the EIA released its weekly natural gas data, which showed a 262 Bcf draw on natural gas inventories. However, the withdrawal was below analyst expectations. Inventories currently stand at 1,923 Bcf, while storage owners are asking users to limit draws as stocks are becoming low. Henry Hub natural gas futures closed down 9.9 cents at $4.931 per MMBtu.

Futures curve

The forward curve for WTI crude is in backwardation, with September 2014 WTI futures 4.3% lower than near-month (March) futures due to rising North American crude supplies. The EIA expects U.S. crude production to average 8.54 MMbbl/d in 2014 — the highest since 1986 — boosted by increased drilling in tight oil plays. While the extended winter drove the near-term (March) natural gas prices higher, the expectation of growing U.S. supply in 2014 weighed on September futures.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.05 15.42 -2.40%
Gasoline Demand (MMBPD) 8.45 8.58 -1.52%
Distillate Demand (MMBPD) 3.94 4.52 -12.83%
Production (MMBPD) 8.04 8.04 NC
Imports (MMBPD) 6.89 8.05 -14.41%
Stocks (million barrels) 358.1 357.6 0.14%
Rotary Rig Count 1,422 1,416 0.42%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,923 2,193 -12.31%
Rotary Rig Count 358 356 0.56%
Horizontal Rig Count 1,173 1,170 0.26%
Consumption (Bcf)* 2,301 (Nov 13) 1,861 (Oct 13) 23.64%
Gross Withdrawals (Bcf)* 2,558 (Nov 13) 2,580 (Oct 13) -0.85%
Canadian Imports (Bcf)* 205.2 (Nov 13) 214.7 (Oct 13) -4.42%
LNG Imports (Bcf)* 2.7 (Nov 13) 5.6 (Oct 13) -51.79%

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

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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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