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Weekly Oil & Gas Market Highlights: October 10, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures October 10,
2013
October 3,
2013
% Change
Oil – WTI
(USD per barrel)
$103.01 $103.31 -0.3%
Oil – Western Canadian Select*
(USD per barrel)
$71.55 $70.60 1.3%
Oil – Brent
(USD per barrel)
$111.80 $109.00 2.6%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.72 $3.50 6.4%

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 remained almost unchanged, falling just 0.3% this week as U.S. lawmakers prolonged their negotiations on funding issues. The news about the alleged kidnap of the Libyan prime minister raised tensions in the Gulf region and extended some support to the prices.

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

  1. Last Friday, crude futures rose half a percent as the National Hurricane Center reported that Tropical Storm Karen was expected to make landfall on October 6 in Southeast Louisiana. Oil and gas companies in the affected region shut down operations ahead of the storm and the Louisiana Offshore Oil Port (LOOP LLC) suspended tanker operations by noon. The Gulf of Mexico is the source of 23% of U.S. crude. Futures also rose as House Speaker John Boehner commented he would not allow the U.S. to default on its debt when the debt ceiling limit—currently at $16.7 trillion—is reached on October 17. With respect to the budget negotiations, the federal government remained partially shut down for the fourth straight day as President Obama and House Republicans traded demands about conditions to break the impasse and resume normal government operations. WTI crude for November delivery rose $0.53 to close at $103.84 per barrel.
  2. On Monday, futures prices eased as oil and gas companies and LOOP resumed operations in the Gulf of Mexico after Tropical Storm Karen made landfall and passed over Alabama. According to U.S. Bureau of Safety and Environmental Enforcement, over 850,000 bbl/d of crude production and 1.8 Bcf/d of natural gas production had been shut down on Sunday due to the storm. Futures also fell as Boehner said the country could end up in default if the president does not negotiate with Republicans over funding the Affordable Care Act (ACA). The federal government closed all “non-essential” operations on Monday, as the House and Senate were not able to agree on a spending bill to fund government operations for fiscal year 2014, which began on October 1. House Republicans had called for funding all federal government operations except the ACA, which the Senate and the President did not accept. The resulting impasse has raised concerns over whether the two sides will be able to come to an agreement on raising the $16.7 trillion debt ceiling limit on October 17, so the country can avoid defaulting on its debt. WTI crude futures fell $0.81 to close at $103.03 per barrel on the NYMEX.
  3. On Tuesday, crude futures rose as U.S. Senate Democrats planned a test vote before the end of the week on raising the U.S. debt ceiling. The measure under discussion would raise the debt ceiling for a year unless two-thirds of both chambers of Congress disapproved the measure. President Obama said he would negotiate with Republicans, but only if they passed a “clean” spending bill to re-open the government and lifted the threat of not raising the debt ceiling. Futures also rose as the Energy Information Administration (EIA) increased its estimate for 2013 world oil consumption from 90.06 MMbbl/d to 90.26 MMbbl/d. World oil demand in 2012 was 89.29 MMbbl/d according to the EIA. WTI futures closed up $0.46 at $103.49 per barrel.
  4. On Wednesday, crude futures fell as the EIA reported U.S. crude inventories rose by 6.81 MMbbl last week, well above analyst expectations. U.S. crude supplies are currently at 370.5 MMbbl as refinery utilizations have fallen to 89% as units have been idled for routine maintenance following the end of the peak summer demand season. On the funding issue, Boehner rejected the president’s offer to negotiate on a long-term fiscal deal in exchange for temporary measures to end the government shutdown. With the federal shutdown currently in its ninth day, the two parties did not appear to be moving closer to an agreement to end it. WTI crude futures fell $1.88 per barrel to close at $101.61 on the NYMEX.
  5. On Thursday, crude futures rose on European trading as Libya's Prime Minister Ali Zaidan was taken hostage at a Tripoli hotel by gunmen. The abduction appeared to be in retaliation for the U.S. special forces’ raid capturing an al-Qaida suspect in Libya. However, the president was freed when members of another militia group stormed the site. Militia violence has increased in the region since the summer despite increased calls from the government to disband the groups. Later in the day, WTI futures rose over 1.5% from a three-month low as it appeared U.S. lawmakers were getting closer to an agreement to raise the debt ceiling. House Republican leaders presented a proposal to raise the debt limit for six weeks without policy conditions. Although the proposal would not end the partial shutdown of government operations, President Obama had previously indicated he would accept a short-term increase in the debt ceiling limit without policy conditions. WTI crude futures closed up $1.40 at $103.01 per barrel.

Natural gas prices

U.S. Henry Hub natural gas futures rose sharply this week, boosted by storm-affected supply in the Gulf of Mexico and expectations of a colder winter in U.S. Northeast. Prices were also supported by lower-than-expected natural gas inventory build.

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

  1. Last Friday, traders covered short positions as Tropical Storm Karen headed toward Louisiana, which led to a shutdown of an estimated 1.7 Bcf/d of natural gas production. The Gulf of Mexico accounts for 5.6% of U.S. natural gas production. Baker Hughes reported the gas-directed rig count rose by two rigs to 378. In June gas-directed rigs posted an 18-year low of just 349 rigs. Henry Hub natural gas futures closed nearly unchanged, up just 0.7 cents at $3.506 per MMBtu.
  2. On Monday, natural gas futures rose as the National Weather Service (NWS) published revised weather forecasts showing warmer weather in the central and eastern portions of the U.S., which was expected to increase natural gas-derived power demand. In the Gulf of Mexico, natural gas operations were restarted following a temporary closure due to Tropical Storm Karen. The U.S. Bureau of Safety and Environmental Enforcement released data showing 1.8 Bcf or around 48% of Gulf gas production was shut down on Sunday as a result of the storm. Henry Hub natural gas futures closed up 12.3 cents at $3.629 per MMBtu.
  3. On Tuesday, natural gas futures extended Monday's gains as weather forecasts from the NWS continued to show warm temperatures across much of the U.S. in the 6–10 and 8–14 day forecast. The EIA reported heating degree-days in the lower 48 states will be down 0.3% from last year in the October-March period based on National Oceanic and Atmospheric Administration data. However, the EIA expects winter in the major demand center, U.S. Northeast, to be 3% cooler than last year. Henry Hub natural gas futures for November delivery rose 8.7 cents to close at $3.716 per MMBtu..
  4. On Wednesday, natural gas futures fell as investors booked profits from the three-day rally. Further, analysts were expecting a 94 Bcf build in EIA’s natural gas inventory data due on Thursday. Natural gas for November delivery fell 3.7 cents to $3.679 per MMBtu.
  5. On Thursday, natural gas futures rose as the EIA released its weekly natural gas inventory report showing an injection of 90 Bcf, which was below analyst expectations. The injection was above both last year’s level of 73 Bcf and the five-year average injection of 84 Bcf. Total U.S. natural gas in storage is 3,577 Bcf, 55 Bcf higher than the five-year average. Natural gas futures closed for the day at $3.723 per MMBtu, up 4.4 cents.

Futures curve

The forward curve for WTI crude is in backwardation, with June 2014 WTI futures 4.1% lower than near-month (November) futures, primarily due to growing North American supply and concerns about a slowdown in global economic growth. However, June 2014 natural gas futures are at a premium of 5.1% over November 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) 14.89 15.44 -3.56%
Gasoline Demand (MMBPD) 8.85 8.53 3.75%
Distillate Demand (MMBPD) 3.83 3.83 NC
Production (MMBPD) 7.81 7.78 0.39%
Imports (MMBPD) 8.04 8.63 -6.84%
Stocks (million barrels) 370.5 363.7 1.87%
Rotary Rig Count 1,372 1,362 0.73%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,557 3,487 2.01%
Rotary Rig Count 378 376 0.53%
Horizontal Rig Count 1,099 1,085 1.29%
Consumption (Bcf)* 1,910 (Jul 13) 1,727 (Jun 13) 10.60%
Gross Withdrawals (Bcf)* 2,552 (Jul 13) 2,453 (Jun 13) 4.03%
Canadian Imports (Bcf)* 225.9 (Jul 13) 228.9 (Jun 13) -1.31%
LNG Imports (Bcf)* 8.1 (Jul 13) 8.1 (Jun 13) NC

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)

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