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Weekly Oil & Gas Market Highlights: March 28, 2013

Deloitte Center for Energy Solutions publication

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Key Oil & Gas price indicators

Front Month Futures (August) March 28, 2013 March 21, 2012 % Change
Oil – WTI
(USD per barrel)
$97.23 $92.45 5.2%
Oil – Brent
(USD per barrel)
$110.02 $107.47 2.4%
Natural Gas – NYMEX Henry Hub
(USD per MMBtu)
$4.02 $3.94 2.3%

Data sources: Bloomberg; CME Group

Crude oil prices

WTI crude oil futures rose throughout the week closing above $97 per barrel following the Cyprus bailout deal and positive economic data from the U.S. Although weak U.S. crude oil inventory data showed some resistance, crude futures rallied as U.S. refineries restarted operations after maintenance.

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

  1. Last Friday, crude futures rose during Asian trading, as it was reported that China’s crude stockpiles fell 2.9% in February to their lowest level in nearly a year. Libya closed down two oil fields as a result of security concerns after a fight between unidentified armed gunmen and security forces broke out at the Gialo facility. The closures affected around 120,000 bbl/d of crude production from the country. Investors were watchful of Cypriot’s efforts to raise the 5.8 billion euros (~$7.5 billion) needed to access emergency financing from the European Central Bank (ECB) and the International Monetary Fund (IMF) in order to avoid a financial crisis in the country. Cypriot politicians began a debate over how to obtain the necessary funds without triggering a financial meltdown before Monday’s deadline. As the debate progressed, the euro rose versus the dollar on speculation that the banking crisis in the country would be contained, which is bullish for crude futures. WTI crude futures closed up $1.26 at $93.71 per barrel. The WTI discount to Brent fell to $13.95, the lowest since July of 2012.
  2. On Monday, crude futures rose as European finance ministers approved a last-minute agreement between Cyprus and international lending institutions for a 10 billion euro ($13 billion) package of emergency loans for the country. The deal forces Cyprus to close its second-largest bank and pushes large losses on to depositors in the country. Cypriot banks were closed for the 10th day and were not expected to open again until Thursday. Cyprus is the fifth nation to access bailout funds since the European debt crisis began in June 2009. Crude futures rose on confidence that the banking crisis in Cyprus had eased and that the Eurozone remained intact. Further, in Iraq, the chairman of the oil and energy committee stated the country was unlikely to reach its 2014 production target of 4.5 MMbbl/d due to the absence of national energy legislation and bureaucratic obstacles. Crude futures closed for the day at $94.81 per barrel, up $1.10.
  3. Crude futures extended recent gains on Tuesday as positive economic news from the U.S. increased investor confidence in growing demand. The Department of Commerce reported that U.S. durable goods spending rose 5.7% in February after falling 3.8% in January. The increase exceeded analyst expectations. U.S. home prices also rose at an annualized 8.1% in January, up from 6.8% in December. The gain was the largest increase since June 2006, but home prices are still 29% below the August 2006 peak. The market largely shrugged off news that U.S. consumer confidence fell to 59.7 in March, down eight points from February, according to the Conference Board. WTI crude for May delivery rose $1.53 to close at $96.34 per barrel, a five-week high. Futures have risen $3.89 (>4%) per barrel in the past three trading sessions. During the day, the Brent/WTI spread fell as low as $12 per barrel.
  4. WTI crude futures fell in Asian trading on Wednesday as traders booked profits ahead of the release of the U.S. Energy Information Administration’s (EIA) weekly oil stocks report. Futures fell further as EIA released data showing a bearish 3.26 MMbbl build in crude stocks to 385.9 MMbbl, a nine-month high. Oil stocks at Cushing also increased by 0.5 MMbbl, which dampened investor sentiment that the high storage levels at the oil hub were beginning to ease. However, futures reversed their downward slide as traders noted that refinery input increased by 0.364 MMbbl/d to 14.9 MMbbl/d with refineries restarting operations after being idled for seasonal maintenance. Refinery utilization was up 2.2% to 85.7% of capacity over the past week, the highest in two months. The 1.6 MMbbl decline in gasoline stocks and 4.5 MMbbl drop in distillates were also positive demand indicators. WTI futures closed up $0.24 at $96.58 per barrel on the NYMEX.
  5. On Thursday, crude futures remained largely range-bound as new U.S. data showed weakness in the pace of recovery. The U.S. Department of Labor reported that new unemployment claims rose by 16,000 to 357,000 last week, which was not only larger than analyst expectations, but the second week the indicator has risen. Also, putting a damper on the market, the U.S. Department of Commerce reported its final fourth quarter GDP figure, which showed GDP rising at an annualized rate of just 0.4%, below analyst expectations. With crude oil stocks increasing across the country and in the key oil hub, the recent bull market for crude seemed to be running out of steam.
    WTI crude futures closed at $97.23 per barrel, up $0.65.

Natural gas prices

U.S. Henry Hub natural gas futures broke through key resistance at $4 per MMBtu, driven by strong inventory withdrawals. However, forecasts of above-average temperature in the U.S. are putting a ceiling on natural gas prices.

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

  1. Last Friday, natural gas futures ended a seesaw session, down 8 cents at $3.927 per MMBtu, the third straight decline following a recent bull market that has seen futures rise 25% in the past five weeks. The rise in prices has been driven by recent below-average temperatures across much of the country. The latest weather forecast from the National Weather Service (NWS) showed most of the eastern half of the country experiencing below-average temperatures with only a small part of the northwest expected to have above-average temperatures. The trend is expected to subside, however, in the 8-10 day forecast as cool temperatures begin to abate and above-average temperatures expand across the northwest. Baker Hughes reported that the gas-directed rig count fell by 13 rigs to 418, still hovering just above a 14-year low.
  2. Natural gas futures closed down for the fourth session in a row on Monday after encountering resistance near $4 per MMBtu. Markets remained stalled just below the $4 mark as cold weather continued to drive expectations of an above-average gas storage withdrawal for the week. However, the revised 6–10 forecast from the NWS showed warmer-than-average temperatures spreading across the country as the recent below-average trend in the east retreats. Henry Hub natural gas futures for April delivery closed down 6.2 cents (1.6%) at $3.865 per MMBtu.
  3. On Tuesday, natural gas futures closed up after rising in afternoon trade, driven by a more than 10 cent premium in cash markets over April futures, which drove late-day contract purchases. Futures again tested resistance near $4 per MMBtu, but were unable to cross that level despite current cold weather in much of the country. Further, the NWS forecasts showed cooler weather trends weakening, which strengthened resistance at the $4 per MMBtu mark. April futures expired up 11.1 cents (2.9%) on the day at $3.976 per MMBtu while the May contract, which moved to the front-month position, rose 10.3 cents to close at $3.991 per MMBtu.
  4. Natural gas futures broke through the key $4 per MMBtu resistance level on Wednesday, driven by expectations of a strong inventory draw this week in EIA’s data as a result of the recent cold front across the country during the past week. Futures held ground above $4 per MMBtu at an 18-month high, closing up 7.7 cents (~2%) at $4.068 per MMBtu.
  5. On Thursday, natural gas futures briefly pushed above $4.10 per MMBtu before falling throughout most of the day, sinking below the $4 mark. However, futures received a brief bounce following the release of EIA’s weekly natural gas inventory report, which showed a 95 Bcf draw on working gas in storage, which was above analyst expectations. The draw compared bullishly to injections last year when gas in storage increased by 45 Bcf and the five-year average injection of 6 Bcf. Gas in storage now stands at 1,781 Bcf. Natural gas futures ended the day at $4.024 per MMBtu, down 4.4 cents.

Futures curve

December 2013 WTI futures are 1.4% lower than current prices due to growing North American supply and weak demand growth in the U.S. However, the December 2013 natural gas futures are at a premium of 7.8% to near-month (May) 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) 14.87 14.51 2.48%
Gasoline Demand (MMBPD) 8.39 8.32 0.84%
Distillate Demand (MMBPD) 4.22 3.58 17.88%
Production (MMBPD) 7.15 7.15 0.00%
Imports (MMBPD) 8.15 7.32 11.34%
Stocks (million barrels) 385.9 382.7 0.84%
Rotary Rig Count 1,324 1,341 -1.27%
Natural gas
Indicators This Period Prior Period % Change
Working Storage (Bcf) 1,781 1,876 -5.06%
Rotary Rig Count 418 431 -3.02%
Horizontal Rig Count 1,100 1,131 -2.74%
Consumption (Bcf)* 2,472 (Dec 12) 2,154 (Nov 12) 14.80%
Gross Withdrawals (Bcf)* 2,560 (Dec 12) 2,496 (Nov 12) 2.55%
Canadian Imports (Bcf)* 234 (Dec 12) 219 (Nov 12) 6.70%
LNG Imports (Bcf)* 16.9 (Dec 12) 14.2 (Nov 12) 18.83%

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

Deloitte’s new paper, Oil & Gas Mergers and Acquisitions Report – Year-end 2012: Stable oil prices support a healthy deal market covers deals from the past 12 months by sector and reveals the insights of Deloitte merger & acquisition (M&A) specialists on what is driving activity and what this says about how the business is changing, as the oil and gas industry continued to demonstrate strong M&A activity in 2012.

Deloitte's new paper Exporting the American Renaissance: Global impacts of LNG exports from the United States describes an objective, economic-based analysis of the potential impact of LNG exports from the United States on domestic and global markets. While much attention has focused on the impact of U.S. LNG exports on the U.S. market, this study from Deloitte MarketPoint LLC and the Deloitte Center for Energy Solutions analyzes the potential economic consequences of those exports on global markets. It attempts to estimate the potential price impacts, gas supply changes, and flow displacements if the U.S. exported a given volume of LNG to either Asia or Europe.

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.

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
Deloitte Energy Conference – Washington, DC
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November 19, 2013
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For more information, please contact OilandGasConference@deloitte.com

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