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Weekly Oil & Gas Market Highlights: February 13, 2014

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures February 13,
2014
February 6,
2014
% Change
Oil – WTI
(USD per barrel)
$100.35 $97.84 2.6%
Oil – Western Canadian Select*
(USD per barrel)
$75.35 $76.09 -1.0%
Oil – Brent
(USD per barrel)
$108.73 $107.19 1.4%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$5.22 $4.93 5.9%

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 2.6% this week primarily due to supply disruptions in Libya. Weak economic data from the U.S. softened the prices while positive Chinese trade data and a fall in crude inventories at Cushing, OK supported the futures.

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

  1. Last Friday, WTI crude futures rose as the Libyan National Oil Company announced oil production fell from 0.60 MMbbl/d last week to between 0.45 and 0.50 MMbbl/d. Crude production in Libya has been disrupted over the past several months due to ongoing labor unrest in the country. Futures also rose as Reuters reported North Sea supply for four major crude streams — Brent, Forties, Oseberg and Ekofisk — will average 0.89 MMbbl/d in March from 1.03 MMbbl/d in February, according to loading programs. Later in the day futures fell briefly after the Department of Labor reported the U.S. economy added just 113,000 new jobs in January, which was well below analyst expectations. However, prices rebounded and continued to rise throughout the day as investors focused on rising equities as a sign of strength in the economy and expectations that the start of spring refinery turnaround season will tighten supplies. WTI crude futures rose $2.04 to close at $99.88 per barrel.
  2. On Monday, crude futures fell in early trading after Iran agreed on Sunday to provide more information regarding its nuclear program to the International Atomic Energy Agency. Improving relations between the Western powers and Iran have the potential to remove oil sanctions against the country and return around 1 MMbbl/d of crude to world markets. During New York trading, crude futures fell initially over concerns warmer weather may limit demand for home heating oil. However, the trend reversed itself as investors noted tightening inventories of petroleum products such as gasoline and diesel, as well as stronger than anticipated export demand. According to data from the Energy Information Administration (EIA) last week, stockpiles of distillates, which include diesel and home heating oil, fell 2% to 113.8 MMbbl—the lowest level of inventories since 2003. WTI crude futures for March delivery closed up $0.18 at $100.06 per barrel.
  3. On Tuesday, crude futures fell during European trading as Libya reported oil production had returned to around 0.60 MMbbl/d. However, production is still below Libya's pre-civil war peak of 1.6 MMbbl/d. Futures rose later in the day as the American Petroleum Institute released its weekly data, voluntarily provided by oil and gas companies, which showed a nearly 2.5 MMbbl decline in crude inventories at Cushing. WTI crude has traded at a discount to Brent as supplies at the pricing hub have risen due to a lack of pipeline transportation to gulf coast refiners. However, the trend reversed later in the day as investors speculated EIA's official data, provided by industry on government mandate, would show an increase in supplies driven by rising domestic production. WTI crude futures closed down $0.12 at $99.94 per barrel.
  4. On Wednesday, crude futures rose as China reported imports of crude rose to a record 6.66 MMbbl/d in January, which was up 12% year-on-year. Meanwhile, Chinese total goods and services exports also rose 10.6% year-on-year indicating strong economic growth in the country. Crude futures rose to a four-month high later in the day as the EIA released its weekly petroleum market data, which showed a 2.67 MMbbl drop in supplies at Cushing, OK. The decline in supplies at the key pricing hub was attributed to the opening of the southern leg of the Keystone XL pipeline, which has been flowing at just under 0.30 MMbbl/d since the start of operations. The pipeline will eventually increase to nearly 0.70 MMbbl/d later in the year. News of the decline in Cushing supplies overrode news of a net 3.27 MMbbl increase in U.S. crude stocks to 361.4 MMbbl as oil demand fell over half a million barrels to 18.5 MMbbl. WTI crude futures rose $0.43 to close at $100.37 per barrel.
  5. On Thursday, crude futures rose as the International Energy Agency (IEA) reported crude stockpiles in advanced economies fell 1.5 MMbbl/d in the fourth quarter of 2013 to end the year at 2.6 billion barrel—the lowest inventory level since 2008. The IEA data also predicted non-OPEC oil production, led by the U.S., Canada and Brazil, will increase by 1.75 MMbbl/d in 2014. Later in the day, futures fell as much as 1% erasing earlier gains as the Department of Commerce reported U.S. retail sales fell 0.4 percent in January, which was a larger decline than December's 0.1 percent fall in sales. Much of the decline was attributed to below-average temperatures across much of the country. Meanwhile, Department of Labor data also pushed crude prices down, as new jobless claims rose from 331,000 to 339,000, which was higher than analysts’ expectations. WTI crude futures closed marginally down at $100.35 per barrel. 

Natural gas prices

Henry Hub natural gas futures rose nearly 6% this week boosted by higher-than-expected inventory withdrawal which pushed the stockpile to 1,686 Bcf—the lowest for this time of year in a decade. Prices fell earlier in the week following the forecasts of moderating cold weather conditions in the United States.

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

  1. Last Friday, Henry Hub natural gas futures fell for the third straight session on expectations of moderating weather conditions in the United States. Revised weather forecasts from the National Weather Service (NWS) showed below-average temperatures in the 6–10 day forecast moderating in the 8–14 day forecast. Henry Hub natural gas futures for March delivery fell 15.6 cents to close at $4.775 per MMBtu.
  2. U.S. natural gas prices fell on Monday as long-term weather forecasts showing a moderation of weather conditions in the 8–14 day forecast held firm over the weekend. The NWS data was supported by data from private weather forecasters predicting above-average conditions in western and central states will move eastward in the extended forecast limiting heating demand. Henry Hub natural gas futures fell 19.6 cents closing at $4.579 per MMBtu.
  3. Natural gas futures rose on Tuesday as investors speculated the EIA's weekly natural gas inventory report would show a larger-than-average decline in U.S. natural gas stockpiles due to cold conditions across the country over the past week. Traders were expecting the data to reveal a draw of over 200 Bcf, exceeding the five-year average draw of 162 Bcf. Henry Hub natural gas futures closed up 24.5 cents at $4.824 per MMBtu.
  4. On Wednesday, natural gas futures rose early in the day following the news about a winter storm moving up the East Coast which was expected to boost heating demand in the near-term. However, futures fell later erasing earlier gains as investors looked at long-term forecasts of warmer conditions in the eastern part of the U.S., which are expected to reduce heating demand. Natural gas futures also fell on news the EIA predicted U.S. natural gas production will increase 2.2% to 71.76 Bcf/d in 2014. Henry Hub natural gas futures slid 0.2 cents to settle at $4.822 per MMBtu.
  5. On Thursday, natural gas prices spiked over 40 cents after EIA reported an inventory withdrawal of 237 Bcf which is higher than the analyst expectations of 228-232 Bcf. At 1,686 Bcf current inventory level is at the lowest for this time of the year in a decade. Henry Hub natural gas futures closed for the day at $5.223 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 colder than average 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) 15.22 15.05 1.13%
Gasoline Demand (MMBPD) 8.33 8.45 -1.42%
Distillate Demand (MMBPD) 3.68 3.94 -6.60%
Production (MMBPD) 8.13 8.04 1.12%
Imports (MMBPD) 7.93 6.89 15.09%
Stocks (million barrels) 361.4 358.1 0.92%
Rotary Rig Count 1,416 1,422 -0.42%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,686 1,923 -12.32%
Rotary Rig Count 351 358 -1.96%
Horizontal Rig Count 1,176 1,173 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.
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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