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Weekly Oil & Gas Market Highlights: August 1, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures August 1, 2013 July 25, 2013 % Change
Oil – WTI
(USD per barrel)
$107.89 $105.49 2.3%
Oil – Western Canadian Select*
(USD per barrel)
$88.09 $84.24 4.6%
Oil – Brent
(USD per barrel)
$109.54 $107.65 1.8%
Natural Gas – U.S. Henry Hub
(USD per MMBtu)
$3.39 $3.64 -7.1%

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 rose more than 2% this week driven by falling crude stocks at Cushing, expectations of continued bond buying by the Fed, improving economic indicators in the U.S., and an 80% cut in Libya’s export capacity.

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

  1. Last Friday, WTI crude futures fell as China’s Ministry of Industry and Information Technology ordered 1,400 companies in 19 industries to cut back on excess production capacity in an effort to shift toward more sustainable economic growth. Many of the sectors are considered energy-intensive, whose closure is expected to have a negative effect on energy demand. Affected sectors include iron, steel, aluminum, cement, and paper. WTI futures closed down $0.79 at $104.70 per barrel on the NYMEX.
  2. On Monday, crude futures were bolstered by concerns about growing unrest in Egypt, which controls the Suez Canal. Over the weekend, more than 70 people were killed and hundreds wounded as military forces fired on a crowd supporting ousted President Mohammed Morsi. Chinese Premier Li Keqiang ordered the Chinese National Audit Office to conduct an “urgent” audit of government debt as net income at Chinese industrial companies fell to 6.3% in June from 15.5% in May. In 2012, China accounted for 12% of global oil consumption, and nearly 50% of the expected growth in demand during 2010-25 is likely to come from the country, according to the U.S. Energy Information Administration (EIA). During New York trading, crude futures traded in a narrow band as traders remained cautious ahead of a two-day meeting of the Federal Reserve’s policy-making body later in the week. Traders are looking for any news about the continuation or phase-out of the Fed’s $85 billion per month bond buying program. WTI crude futures closed down just $0.15 at $104.55 per barrel.
  3. Crude futures fell in light trading on Tuesday as investors continued to remain on the sidelines ahead of the closely watched meeting of the Federal Reserve. Traders were also anticipating the release of second-quarter GDP growth estimates by the Department of Commerce on Wednesday. Economists were predicting GDP growth to have slowed to just half of the 1.1% growth seen in the first quarter of 2013. Futures closed down $1.47 at $103.08 per barrel.
  4. On Wednesday, during Asian trading crude prices largely moved sideways as Sudan postponed plans to block crude exports from South Sudan. Much of South Sudan's low-sulfur crude is sold to Japan and other Asian destinations. Futures rose during New York trading as the Department of Commerce reported U.S. GDP rose at an annualized 1.7% in the second quarter from 1.1% during the first quarter. The figure was above analyst expectations. Later in the day, the EIA released its weekly oil stocks report, which showed crude inventories increased by 431,000 barrels last week, against analyst expectations of ~2 MMbbl decline. However, traders noted oil supplies at Cushing, Oklahoma, fell 1.9 MMbbl to 42.1 MMbbl, the lowest level of crude inventories since April 2012. The news of falling supplies at the key trading hub helped bolster WTI prices. The Federal Open Market Committee said, following its two-day meeting, that it will continue its $85 billion per month bond buying program, but offered no new details about when the program might begin to be phased out. WTI crude futures closed up $1.95 at $105.03 per barrel.
  5. On Thursday, futures rose as China's Purchasing Managers' Index rose to 50.3 last month, above analyst expectations. The figure suggested China's economic growth may be stabilizing as the government adopts more pro-growth strategies. In Libya, Oil Minister Abdulbari Al Arusi announced the country’s export capacity would fall nearly 1.1 MMbbl/d (80%) from 1.43 MMbbl/d (as of July 30) as the country's major oil exporting ports are closed due to unrest, protests, or strikes. The 330,000 bbl/d port of Zawiya will continue operations. In the U.S., futures rose as the Department of Labor reported new jobless claims fell by 19,000 to 326,000, the lowest level in over five years. WTI crude futures closed for the day at $107.89 per barrel, up $2.86.

Natural gas prices

U.S. Henry Hub natural gas futures fell over 7% this week due to persisting mild summer weather in most of the U.S. The bearish weekly inventory data—showing higher-than-average injection for this time of the year—also added to the fall in prices.

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

  1. Natural gas futures closed down last Friday as mild temperatures, held firm in National Weather Service (NWS) forecasts, weighed on prices. Traders also continued to monitor Tropical Storm Dorian in the Atlantic. However, there was little expectation that the storm would disrupt energy industry operations in the Gulf of Mexico. Baker Hughes reported the natural gas rig count was unchanged at 369, after rising for the past four weeks. Natural gas futures closed down 8.9 cents at $3.555 per MMBtu.
  2. On Monday, natural gas futures fell to a five-month low in its fourth straight daily loss. Revised weather forecasts from the NWS failed to provide new support as mild weather persisted across much of the country, keeping air-conditioning demand at average levels. Over the weekend, Tropical Storm Dorian dissipated, allaying any concerns the storm might have affected Gulf of Mexico production. Natural gas futures for August delivery expired down 9.6 cents at $3.459 per MMBtu.
  3. On Tuesday, natural gas futures extended losses to a fifth straight day on concerns mild temperatures would increase the size of weekly injections in EIA’s weekly natural gas inventory report. Traders are concerned that despite the falling gas-directed rig count, natural gas production continues to grow and working inventories of gas at 2,786 Bcf provide considerable cushion for the market. Natural gas futures closed down 2.7 cents at $3.432 per MMBtu.
  4. On Wednesday, natural gas futures closed slightly up, driven by bargain-hunting following five straight down sessions. The front-month contract fell 6.2% last week and was down 3.5% during the first two days of trading this week. However, the 6–10 day forecast from the NWS continued to show moderate temperatures across much of the country, with only portions of the Northeast, Mid-Atlantic, and Midwest experiencing below-average temperatures. Henry Hub natural gas futures closed up 1.4 cents at $3.446 per MMBtu.
  5. On Thursday, natural gas futures fell following the release of EIA's weekly natural gas inventory report, which showed the working gas in storage at 2,845 Bcf with a bearish 59 Bcf injection during the prior week. The injection was above analyst expectations and the five-year average injection of 47 Bcf during the same period. In the absence of another major heat wave forecast for this summer, natural gas futures are facing downward pressure as summer air-conditioning demand remains moderate. Natural gas futures closed 5.9 cents lower at $3.387 per MMBtu.

Futures curve

The forward curve for WTI crude is in backwardation where March 2014 WTI futures are 8% lower than near-month (September) futures due to growing North American supply and concerns over slowing global economic growth. However, March 2014 natural gas futures are at a premium of 11% to September 2013 futures, expecting moderate supply growth and higher demand from commercial and residential sectors in 2013.

Data source: Factset

Weekly U.S. crude oil and natural gas data

Crude oil
Indicators This Period Prior Period % Change
Refinery Inputs (MMBPD) 15.97 16.03 -0.41%
Gasoline Demand (MMBPD) 9.15 8.98 1.84%
Distillate Demand (MMBPD) 3.98 4.31 -7.70%
Production (MMBPD) 7.54 7.56 -0.17%
Imports (MMBPD) 8.17 8.03 1.69%
Stocks (million barrels) 364.6 364.2 0.11%
Rotary Rig Count 1,401 1,395 0.43%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 2,845 2,786 2.12%
Rotary Rig Count 369 369 NC
Horizontal Rig Count 1,067 1,058 0.85%
Consumption (Bcf)* 1,740 (May 13) 1,947 (Apr 13) -10.65%
Gross Withdrawals (Bcf)* 2,537 (May 13) 2,485 (Apr 13) 2.09%
Canadian Imports (Bcf)* 229.0 (May 13) 215.1 (Apr 13) 6.48%
LNG Imports (Bcf)* 5.6 (May 13) 5.2 (Apr 13) 8.80%

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.

Learn more

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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.

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