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Weekly Oil & Gas Market Highlights: January 17, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) January 17, 2013 January 10, 2012 % Change
Oil – WTI
(USD per barrel)
$95.49 $93.82 1.8%
Oil – Brent
(USD per barrel)
$111.10 $111.89 -0.7%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.49 $3.19 9.4%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI prices closed up 1.8% this week at $95.49 per barrel largely due to tensions in the Middle East and Africa and positive economic data from the U.S. An unexpected fall in crude stocks supported prices despite concerns about debt-ceiling talks in the U.S. and weak economic data from Germany.

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

  1. Last Friday, crude futures fell during Asian trading as China’s National Bureau of Statistics released its December inflation data, which showed that inflation increased to 2.5% from 2% in November. Traders are concerned that an uptick in inflation could mean that China may begin to ease its economic stimulus program, which would be bearish for crude demand in the world’s second-largest oil consuming nation. Prices began to rise later in the day over concerns about lower Saudi supplies and instability in the Middle East. Saudi Arabia has reduced its crude output by 700,000 bbl/d since the beginning of November to 9 MMbbl/d, mainly over concerns about demand from OECD countries due to the economic slowdown. Further affecting supplies from the Middle East, Yemen’s 120,000 bbl/d Mariba-Ras Isa pipeline was shut down after it was attacked on Thursday. The pipeline, which was repeatedly targeted by militants last year, had resumed operation just last week. It is not known when the pipeline will now start functioning again. Futures closed down 0.3% at $93.56 per barrel.
  2. On Monday, futures rose during Asian trading, buoyed by supply issues and geopolitical tensions in the Middle East. Oil exports from Iraq’s port at Basra were cut from 2.35 MMbbl/d to 0.96 MMbbl/d due to high winds in the Persian Gulf. Adding to concerns about the country’s stability, a convoy carrying Iraqi Finance Minister Rafa al-Essawi was hit with a roadside bomb on Sunday, although the minister escaped without injury. Middle East tensions were further fuelled by Iran’s naval exercises near Bandar Abbas in the Strait of Hormuz, to test new weapon systems, the combat-readiness of its naval forces, and natural disaster response. A few weeks ago, at the end of 2012, Iran also held a six-day naval exercise called Velayat-91 in the Strait. Meanwhile, Korea’s imports of Iranian crude were up ~25% from last year to 190,000 bbl/d, according to data from the nation’s customs agency. Crude futures fell later in the day as President Obama responded to questions about the debt-ceiling negotiations with Congressional Republicans. Republican lawmakers are asking the president to approve a package of spending cuts in return for raising the debt ceiling above $16.4 trillion, a level which the government is expected to reach next month. President Obama said that he will not bargain over the debt-ceiling increase and wants to discuss spending cuts as part of a different conversation. Prices recovered later in the day as Federal Reserve Chairman Ben Bernanke urged lawmakers to raise the debt ceiling. Futures closed up 0.6% at $94.14 per barrel.
  3. On Tuesday, crude futures fell during Asian trading as investors remained concerned about debt-ceiling talks in the U.S. Since the debt limit was created in 1917, it has been increased nearly 80 times. Futures also fell as Germany released data that showed the country’s 2012 GDP grew by only 0.7%, well below the 3% growth reported in 2011. Preliminary data from Germany also estimates that the country’s economy shrunk by 0.5% in the fourth quarter of the year. WTI traded near four-month highs as cooler temperatures across the East Coast and Midwest were expected to increase demand for home-heating fuels. Futures were also boosted by a 0.5% increase in U.S. retail sales in December, which was above analyst expectations. However, futures closed down 0.9% at $93.28 per barrel as the New York Empire State Manufacturing Survey reported that the General Business Conditions index fell to -7.78, well below the average estimate of 2.0. A figure below zero represents contraction.
  4. On Wednesday, crude futures rose during Asian trading as the Japanese yen strengthened versus the dollar, making oil less expensive for Japanese purchasers. Traders are waiting for Friday’s release of China’s estimated GDP figures to provide a gauge of Asian crude demand. OPEC released its Monthly Oil Market Report, which showed a 465,000 bbl/d reduction in output from the group. The decline was the largest fall in output since the Libyan civil war in March 2011. The data shows that OPEC continues to pump ~400,000 bbl/d more than its official quota of 30 MMbbl/d, while the group expects to see an additional 900,000 bbl/d of supply enter the market in 2013 from Brazil, Canada, and the U.S. Later in the day, futures rose over 1% as the Energy Information Administration (EIA) released its weekly oil stocks data, which showed that oil stocks fell unexpectedly by over 950,000 barrels last week to 360.3 MMbbl. Analysts had expected to see an increase of over 2 MMbbl in stocks. U.S. domestic oil production rose to 7.04 MMbbl/d last week, which is the highest level since 1993, while the petroleum products consumption increased to 17.95 MMbbl/d. Gasoline stocks were up 1.91 MMbbl to 235 MMbbl and middle distillates were up 1.67 MMbbl to 132.4 MMbbl. The unexpected draw in crude stocks helped to drive up futures, which closed at $94.24 per barrel.
  5. On Thursday, crude futures fell during Asian trading on profit-taking following Wednesday’s rally driven by the latest EIA data. Futures began rising again, however, as the dollar slumped versus the euro, which is bullish for crude. Investors watched the situation in Algeria intently as militants, possibly linked to al Qaeda, took around 40 hostages, including Americans, at a natural gas facility in the Sahara desert. Militants claimed that the hostage taking was done in retaliation for French intervention in neighboring Mali where French troops have been working to stabilize the southern part of the country from Islamist militants that hold the north. The Algerian military, which has an aggressive anti-terrorism stance, launched a raid against the militants during the day. Early and often contradictory reports stated that up to 35 hostages and 15 militants had been killed in the raid; some reports stated that 7 hostages were still alive. News of the raid pushed oil prices higher amid concerns that oil companies would begin to withdraw personnel from the region, affecting the crude production. There were also concerns that such retaliatory raids by militants may spread within the region, which is already roiling with a series of conflicts and unrest. Futures were also buoyed by positive economic data from the U.S. Department of Labor, which showed that new jobless claims fell 37,000 to 335,000, the lowest level since 2008 and the largest week-on-week decline since February of 2010. The Department of Commerce also added to the optimism as its data showed that housing starts were up 12.1% in December. WTI futures were up $1.25 on Thursday, closing at $95.49 per barrel on the NYMEX.

Natural gas prices

U.S. Henry Hub futures rose over 30 cents this week, boosted by a higher-than-expected drawdown in inventory and cooler weather forecasts.

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

  1. On Friday, natural gas futures extended Thursday’s gains as traders bought into the February contract on bullish news from the EIA, which showed a larger-than-expected draw on natural gas in storage. Last week’s 195 Bcf draw was higher than last year’s largest weekly draw of 192 Bcf and it reduced gas inventories to 3,316 Bcf, nearly 3% below last year’s levels. The National Weather Service’s (NWS) 6–10 day forecast predicted below-average temperatures across the Northeast, North Central, and South Central regions, which pushed prices up during the day. The weekly rig count from Baker Hughes on Friday showed that gas-directed rigs fell by 5 to 434 last week, the first decline over the past four weeks.
  2. On Monday, natural gas futures rose 4.6 cents to $3.373 per MMBtu, driven by cooler weather forecasts and investor momentum, which currently favors the upside. The 6–10 day forecast from the NWS showed most of the eastern half of the United States experiencing below-average temperatures with the highest probability centered on the Great Lakes region. The western half of the country, particularly California, is forecast to experience above-average temperatures. Traders expected that given the recent large draw in stocks, colder temperatures would help keep storage draws robust for the short term.
  3. On Tuesday, natural gas futures rose for the fourth straight day. Futures have climbed more than 10% in the past four sessions, driven by current cold temperatures across much of the country and investor momentum favoring the upside due to the recent large draw on gas in storage. Henry Hub futures also received support from above-average nuclear power plant outages at 9,200 MW this week, which is 1,700 MW above the same time last year. The revised 6–10 day forecast for the day showed colder temperatures intensifying in the eastern half of the country. However, the less accurate 8–10 day forecast showed colder temperatures beginning to abate as above-average temperatures spread from the West and Southwest to the central part of the country. Natural gas futures closed at $3.455 per MMBtu, up 8.2 cents.
  4. On Wednesday, natural gas futures fell as traders booked profits ahead of EIA’s release of weekly storage data, with investors mostly expecting a neutral drawdown this week. During the same week last year, inventories fell 89 Bcf with a five-year average draw of 144 Bcf. Despite current below-average temperatures, traders believe that the heating season will end with stocks above average. The 6–10 day forecast from the NWS showed cooler-than-average temperatures retreating to Northeast U.S. and above-average temperatures expanding east to cover large parts of Texas and the Midwest. Futures closed at $3.435 per MMBtu, down 2 cents.
  5. On Thursday, natural gas futures rose as the EIA reported a bullish 148 Bcf draw on natural gas in storage, which now stands at 3,168 Bcf. The draw was above analyst expectations for the third week in a row. However, the data showed that consumption was down 2.2% during the week, driven by a 5.4% decline in gas use by the residential/commercial sector. U.S. production was also down 0.7% during the week. The revised 6–10 day forecast from the NWS was bearish as warmer-than-normal temperatures are likely to blanket most of the country, with only New England expected to experience below-average temperatures. Independent forecaster MDA Weather Services predicted intermittent below-average temperatures in its 6–10 day forecast for the Northeast and Midwest, but claimed that it would be followed by warmer temperatures. Henry Hub natural gas futures for February delivery closed up 5.9 cents at $3.494 per MMBtu.

Futures curve

September 2013 WTI futures are 1% higher than current prices, reflecting the average cost of carry, limited upside in demand, and adequate supply. However, the September 2013 natural gas futures premium widened to 5.3% due to the recent fall in near-month (February) delivery prices.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.10 15.26 -1.05%
Gasoline Demand (MMBPD) 8.32 8.01 3.87%
Distillate Demand (MMBPD) 3.45 3.09 11.65%
Production (MMBPD) 7.04 7.0 0.57%
Imports (MMBPD) 8.03 8.32 -3.49%
Stocks (million barrels) 360.3 361.3 -0.28%
Rotary Rig Count 1,323 1,318 0.38%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 3,168 3,316 -4.46%
Rotary Rig Count 434 439 -1.14%
Horizontal Rig Count 1,119 1,112 0.63%
Consumption (Bcf)* 1,888 (Oct 12) 1,798 (Sep 12) 5.01%
Gross Withdrawals (Bcf)* 2,571 (Oct 12) 2,427 (Sep 12) 5.93%
Canadian Imports (Bcf)* 242.3 (Oct 12) 246.4 (Sep 12) -1.66%
LNG Imports (Bcf)* 10.3 (Oct 12) 11.5 (Sep 12) -10.43%

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)

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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.

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