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Weekly Oil & Gas Market Highlights: February 21, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) February 21, 2013 February 14, 2012 % Change
Oil – WTI
(USD per barrel)
$92.84 $97.31 -4.6%
Oil – Brent
(USD per barrel)
$113.53 $118.04 -3.8%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$3.25 $3.16 2.6%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude oil futures fell 4.6% this week, hit by weak economic data from the U.S. and Eurozone, bearish inventory data, and rumors about a possible sell-off by a commodity trading fund. On the positive side, news about the Seaway pipeline recovering from operational constraints partially supported prices.

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

  1. WTI crude futures fell in Asian trading last Friday following disappointing European data released on Thursday, which showed a 0.6% fall in fourth-quarter GDP. During London trading, futures slipped further as Eurostat, the European Union’s (EU) official statistics agency, reported that EU exports fell 1.8% in December while imports fell 3.0%, indicating a weakening of internal demand. Futures continued the decline during New York trading as the Federal Reserve announced that U.S. industrial production fell 0.1% in January following a 0.4% gain in December. Prices also fell after reports surfaced that internal emails from Wal-Mart revealed the company’s retail sales were down as a result of higher payroll tax. The news sent the broader market down pulling WTI futures with it. WTI futures for March delivery closed down $1.45 (1.5%) at $95.86 per barrel.
  2. On Monday, U.S. markets were closed for the U.S. President’s Day holiday. Electronic trading volumes during international hours were thin. Last traded crude price for the day was $95.57 per barrel.
  3. On Tuesday, crude futures volumes were thin as the market lacked clear direction from macroeconomic indicators. Prices received upside support as data from the Joint Organizations Data Initiative, a data sharing initiative between six organizations, showed December crude exports from Saudi Arabia fell to 7.06 MMbbl/d and from Iraq—OPEC’s second-largest oil producer—fell 10% to 2.35 MMbbl/d. The chief economist of the International Energy Agency stated that high crude prices are making a global economic recovery more difficult. Futures rose during New York trading as it was reported that crude volumes transported via the Seaway pipeline will increase to an average of 295,000 bbl/d from 180,000 bbl/d in January. Last month, the volume of crude in the pipeline moving from Cushing to the Gulf Coast fell due to operational constraints. Increased takeaway capacity from Cushing supports rising futures as it relieves supply pressure at the benchmark’s pricing point. WTI futures closed up $0.80 at $96.66 per barrel.
  4. On Wednesday, futures traded largely sideways on Asian markets as data from Japan’s Ministry of Finance showed the country’s balance of trade reached a monthly deficit of 1.6 trillion yen ($17.1 billion). The deficit was driven by a weakening yen and the effect of fuel switching from nuclear power to imported fossil fuels following the Fukushima nuclear disaster. Inflationary policies in Japan are weakening the yen, which is making dollar-denominated crude more expensive to import. During London trading, futures fell slightly as it was revealed that the UN Security Council is expected to make a new offer to Iran to resolve the ongoing dispute over the country’s nuclear program. Multilateral talks are scheduled to begin early next week in Kazakhstan. Crude futures fell $1.95 (2.3%) in just over 10 minutes during New York trading on rumors that a commodity trading fund was about to liquidate positions. Large declines in the metals market on the news spilled over to the oil market. However, the rumor could not be verified and the Commodity Futures Trading Commission declined to comment on the news. The release of the minutes of the Federal Open Market Committee meeting also put downward pressure on prices as it revealed that some members of the committee had reservations about the Fed’s asset-buying program, which has been bullish for crude oil futures. WTI futures for March delivery expired down $2.20 at $94.46 per barrel. The April month contract moved into the front-month position and closed down $1.88 at $95.22 per barrel.
  5. On Thursday, crude futures fell as traders grew concerned over the state of the European economy. The Eurozone’s composite Purchasing Manager’s Index (PMI) fell from 48.6 in January to 47.3 in February according to Markit Economics. The PMI score for Germany, Europe’s largest economy, rose to 50.1 from 49.8, while France’s PMI fell from 43.6 in January to 42.7 in February. During New York trading, futures came under additional pressure as the Department of Labor reported that new applications for unemployment benefits rose by 20,000 to 362,000, which was worse than analyst expectations. A bearish weekly report on oil stocks from the Energy Information Administration (EIA) sent prices down 2.7%. Crude stocks rose 4.1 MMbbl to 476.4 MMbbl, higher than analyst expectations, triggering concerns about future oil demand in the U.S. Also contributing to downward pressure on futures, domestic crude production rose to 7.12 MMbbl/d, the highest level in 20 years. Stocks of gasoline fell by 2.9 MMbbl to 230.3 MMbbl, while distillate stocks fell 2.3 MMbbl to 123.6 MMbbl. Crude futures closed at $92.84 per barrel, down $1.93 (1.7%).

Natural gas prices

U.S. Henry Hub natural gas futures recovered 8.3 cents per MMBtu (2.6%) this week after falling four weeks in a row. Prices rose in response to a snowstorm in the U.S. Midwest, although weak inventory data and warmer weather forecasts exerted some downward pressure.

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

  1. Natural gas futures experienced little change after a seesaw session last Friday. The front-month March contract closed down 1 cent at $3.156 per MMBtu. Bulls struggled following the bearish storage build of 157 Bcf reported the prior Thursday. Although the weather forecasts from the National Weather Service (NWS) called for average-to-below-average temperatures across most of the country in both the 6–10 day and 8–14 day forecasts, traders were concerned that there were not enough heating degree days remaining to make a substantial draw on gas in storage.
  2. On Monday, markets were closed for the U.S. President’s Day holiday.  Electronic trading volumes during international hours were thin. Last traded Henry Hub natural gas price for the day was $3.175 per MMBtu.
  3. On Tuesday, futures rose nearly 4% in response to a snowstorm in the Midwest, which boosted natural gas demand. The 6–10 day forecast from the NWS showed below-average temperatures across most of the country with only a narrow band along the East Coast falling under the above-average category. Nuclear power plant outages also lent support to natural gas prices. Outages were 15,300 MW, which is 3,300 MW above last year’s figure and above the five-year average outage of 9,800 MW. Henry Hub natural gas futures closed up 11.9 cents to close at $3.272 per MMBtu.
  4. On Wednesday, futures ended slightly higher at $3.279 per MMBtu, up 0.7 cents, boosted by forecasts of colder weather over the next two weeks. The Forecaster Commodity Weather Group expects that temperatures across the country will be below average or average over the next two weeks. The NWS continued to show much of the country experiencing below-average temperatures, particularly across the southern two-thirds of the country, with above-average temperatures in the Northeast and Great Lakes region.  However, the 8–14 day NWS forecast showed warmer temperatures spreading across the country from the West.
  5. Natural gas futures ended down 3.3 cents on Thursday at $3.246 per MMBtu following mixed gas inventory data. The EIA reported that working gas in storage fell 127 Bcf last week to 2,400 Bcf. Futures rose initially on the news, since it was the first draw in over four weeks that beat analyst expectations. However, the draw compared bearishly to the 155 Bcf draw during the same week last year and was also below the five-year average draw of 140 Bcf. Natural gas inventories are still 361 Bcf above the five-year average at a time when the heating season is starting to wind down, making further upside difficult.

Futures curve

November 2013 WTI futures are less than 1% higher than current prices, reflecting the average cost of carry, which is offset by limited upside in demand and adequate supply. However, the October 2013 natural gas futures are at a premium of 9.2% to near-month (March) futures due to moderating supply growth and increased demand from commercial and residential sectors.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 14.18 14.31 -0.94%
Gasoline Demand (MMBPD) 8.44 8.40 0.39%
Distillate Demand (MMBPD) 3.81 3.94 -3.40%
Production (MMBPD) 7.12 7.06 0.76%
Imports (MMBPD) 7.69 7.51 2.34%
Stocks (million barrels) 376.4 372.2 1.13%
Rotary Rig Count 1,337 1,330 0.53%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,400 2,527 -5.03%
Rotary Rig Count 421 425 -0.94%
Horizontal Rig Count 1,139 1,143 -0.35%
Consumption (Bcf)* 2,154 (Nov 12) 1,892 (Oct 12) 13.85%
Gross Withdrawals (Bcf)* 2,506 (Nov 12) 2,569 (Oct 12) -2.45%
Canadian Imports (Bcf)* 219.3 (Nov 12) 242.3 (Oct 12) -9.49%
LNG Imports (Bcf)* 14.2 (Nov 12) 10.4 (Oct 12) 36.54%

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

Learn more

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Deloitte MarketPoint LLC can help Energy & Resources companies with their most strategic business decisions. Deloitte MarketPoint's analytic suite, called MarketBuilder, is a data analytics solution that helps clients understand future markets and prices for most energy commodities, including oil, gas, refinery products, electricity, emissions, and coal, at each point in the value chain. For more information on how Deloitte MarketPoint can help you make more strategic decisions, please visit www.deloittemarketpoint.com or email deloittemarketpoint@deloitte.com.

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May 21-22, 2013
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November 19, 2013
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About the Deloitte Center for Energy Solutions
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