3rd Quarter 2013 Energy Review

For a presentation that reviews the latest macro trends in the energy industry, please click here.

Front month WTI increased +6.0% during the 3Q of 2013 from $96.56/Bbl to $102.33/Bbl.  The increase raised WTI’s year-to-date performance to +11.5%.

The quarter was similarly strong for international Brent oil prices with were also up +6.0% during 3Q 2013 rising from $102.16/Bbl to $108.37/Bbl.  However, as opposed to WTI’s +11.5% gain on a year to date basis, Brent prices have fallen by -2.5% in 2013.

Natural gas prices were flat for the quarter and are up +6.2% year to date.

Several factors have contributed to this recent rise in oil prices and the divergence between the performance of WTI vs. Brent oil prices since the beginning of the year.

Supply Disruptions in the Middle East

a. Labor strikes in Libya removed an estimated 1 million Bbl/Day of production in 3Q13.  The country’s production has partially recovered and is currently 700,000 Bbl/Day.

b. Iraq’s exports slowed by approximately 500,000 Bbl/Day during the quarter due to maintenance on a major export terminal.

c. Although all of Syria’s exports of 200,000 Bbl/Day have been offline since late 2011, the threat of military action against Assad’s regime have once again stoked fears of a broader conflict in the region.

d. Similarly, although a minor producer of oil, the deposition of Egyptian President Mohamed Morsi in July led to an increase in the political risk premium of oil due to concerns that crude oil shipping through the Suez Canal could be at risk.

Supply DisruptionsSource: Raymond James

Demand Improved Around the World

a. Although January to June 2013 U.S. oil demand figures were essentially flat, July and August showed an average year-over-year increase of 388,000 Bbl/Day.  After several years of falling oil demand, the strength of the U.S. summer driving season is encouraging.

b. Similarly, after concerns about flat Chinese oil import growth from January to June 2013, reports for July and August showed strong year-over-year increases.  July and August showed a large year-over-year average increase in oil imports of nearly 900,000 Bbl/Day.

c. Modest GDP growth from the Eurozone put a technical end to the recession in Europe.  Although we have yet to see data that supports oil demand growth in Europe, flat 2Q13 year-over-year oil demand is encouraging relative to the steady contraction we have witnessed over the past few years.

China ImportsSource: Bloomberg

New Pipelines De-Bottlenecking Cushing, OK Oil Inventories

a. We forecast that pipeline capacity will increase by +235 MBbl/Day by year end 2013 and another +1,068 MBbl/Day by mid year 2014.  A total of +1,303 MBbl/Day of new pipeline capacity should be installed during this time period.

b. After two years of U.S. increases in oil production overwhelming existing infrastructure, major projects in 2013 and 2014 will increase outbound capacity and allow oil volumes to be diverted away from Cushing, OK.

c. We believe that this will allow the U.S. to substitute domestic volumes for nearly all light and medium waterborne imports of crude by 2015.

d. This has supported WTI prices as they have moved up to narrow the discount to international crude prices.  However, with the prospect of forgone U.S. imports adding to global supplies in the near future, international crude prices have been nearly flat in 2013.

TXGC_PipelinesSource: EIA, RBN Energy, Simmons & Co.

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