Working gas in storage was 2,877 Bcf as of Friday, June 1, 2012, according to EIA estimates. This represents a net increase of 62 Bcf from the previous week. Stocks were 713 Bcf higher than last year at this time and 687 Bcf above the 5-year average of 2,190 Bcf.
We should see more demand for power generation this summer. My AC running long and hard already.
Will we see $3/mmbtu by year-end? Possible, but we may see gas dip below $2 in the 3rd quarter first (when storage tops 4 TCF).
Keep praying for a cold winter. I am.
Natural Gas
Natural Gas
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Natural Gas
NG prices stabilizing
By Dominick Chirihella - Fri 08 Jun 2012 07:50:55 CT
Nat Gas has stabilized after yesterday's strong sell-off on a missed injection report. I must admit I think yesterday's injection report was a lot more constructive that how the market interpreted the report and subsequently traded around the outcome. The only bearish aspect of the report was the fact that the injection came in about 6 BCF greater than the consensus projections but still well within the range of projections. It also was well below both last year and the five year average resulting in the overhang in inventory narrowing for the twelfth week in a row. So overall the current fundamentals after the report remain much as they were before the report and maybe a tad improved.
With the stabilizing of prices today (so far) the market is still settling into the $2.25 to $2.50/mmbtu trading range. I expect this trading range to remain in play for the next month or so at least and possibly longer if demand from coal to Nat Gas switching holds and producers adds further to cuts in production. The lower end of the trading range is being supported by the coal to gas switching demand as well as exports to Mexico...which is at the highest level in seven years. Cuts have been occurring but I still think the industry will have to cut further to avoid a premature filling of storage.
In the latest EIA weekly Nat Gas report they showed that U.S. pipeline exports to Mexico reached 1,867 million cubic feet per day (MMcf per day) on Tuesday, June 5, according to data from BENTEK Energy LLC (Bentek). This is the highest daily volume of U.S. exports to Mexico in the 7.5 years for which Bentek has data available. Pipeline exports from Texas usually make up around 75 percent of the total U.S. pipeline exports to Mexico, while exports from the other Southwestern border states make up the balance.
U.S. exports to Mexico have displayed strong growth since 2011, as Mexico increased its natural gas-fired power generation amid declining domestic natural gas production. Strength in U.S. supply, as well as relatively low natural gas prices, have made U.S. natural gas an attractive option for Mexico.
In addition Total consumption for the report week registered an overall decline, with a decrease in power sector demand offsetting increases in other sectors. According to estimates from Bentek, domestic natural gas consumption fell by 2.8 percent from last week, driven by a decline of 10.1 percent in power sector consumption. Residential/commercial and industrial sector consumption ended the week up 9.3 percent and 1.3 percent, respectively. For all sectors, consumption exceeded levels for the same week last year.
Total supply for the week registered an overall decline of 1.3 percent, reflecting a similar drop in dry gas production. According to Bentek estimates, domestic weekly dry gas production was 1.3 percent lower than the previous week (although 2.6 percent above the same time last year). Imports from Canada also rose modestly (1.5 percent), with increases in shipments to the West and Midwest offsetting declines in the Northeast. For the week, imports from Canada stand 19.3 percent above year-ago volumes. Liquefied natural gas (LNG) sendout dropped sharply, down 32.7 percent from last week; sendout volumes remain well below (73.5 percent) year-ago levels.
At the moment the Nat Gas market is being driven by the fundamentals unlike many other commodities that are very much impacted by the eternals of Europe and elsewhere. The market is still overbalanced but not as much as it was earlier in year during the warmest winter in years. Demand is growing from coal to gas switching and from exports (see above). In addition we are now in the early stages of the summer cooling season with temperatures for the next several weeks projected to be above normal and thus resulting in some additional Nat Gas demand to meet cooling requirements. Furthermore we are also not yet into the hurricane season. This is the least predictable of all but there is exposure to supply if this year's season results in damaging storms in the Nat Gas rich portion of the US Gulf of Mexico.
How deep the producing sector is going to have to cut to avoid hitting maximum storage capacity prior to the end of the injection season is not easily determined. So far for the first 12 weeks of the injection season inventories have been building at about 73% of last year's level. Certainly to the extent that the next three months perform as the last three months very large cuts will not be required. However, I do not think injections will underperform as much as they have and more cuts will be needed.
I am keeping my view at neutral and keeping my bias at neutral with an eye toward the upside now that Nat Gas has moved back to much more representative levels that are in sync with current fundamentals. The surplus is still narrowing in inventory versus both last year and the five year average but could lead to a premature filling of storage during the current injection season. However, I now believe that we may see other producers starting to signal a cut in production. We may still see lower prices (thus the basis for my bias) but I think the sellers are losing momentum.
With what is looking like a transition toward more stimulus/easing programs starting to surface around the world I am upgrading my oil view to neutral with one eye toward the bullish side. I am starting to expect the oil complex to settle into the $80 to $90/bbl trading range basis WTI and $95 to $105/bbl basis Brent. At the moment it is not so much that the current fundamentals have changed it is more related to the fact that the market sentiment is changing as participants move into the perception mode based on more stimulus which could result in an improvement of the forward fundamentals from a demand perspective.
Yesterday's trading was partially driven by a surprise move by the Chinese government to lower short term interest rates coupled with the US Fed FOMC disappointing the QE3 watchers. Many market players were expecting Bernanke to signal his hand as to what action the Fed is likely to take at the June 28 - 29 FOMC meeting. Much like the head of the ECB the day before Bernanke's comment's were very open ended with no specific commitment or bias toward another round of QE. There was no conclusion or signal one way or the other as to whether or not QE3 is on the table. His comments can mostly be summed up by ...the Fed will take whatever measures are required. In the end the market did not like the vagueness of his comments and selling hit the market for the remainder of the session as the Chinese interest rate cut was overshadowed and continues to be overshadowed into today's trading session.
The last few days of trading have primarily been driven by the perception that a round of global stimulus may be on the way along with a growing view that there may be a solution to some of the EU issues...in particular the Spanish banks. In fact just this morning Germany said that aid instruments are ready if Spain applies for them. The problem facing the trading and investing community is on one hand the global economy is slowing in all corners of the world while sovereign debt issues are still evolving in Europe which is simply bearish for all risk asset markets. On the other hand there is a growing view that the Central Bankers of the world are going to crank up the printing presses and attempt to inflate their way out of some of the pending issues while trying to jump start the global economy.
So far China is the only major global economy to actually show their hand by cutting short term interest rates while liberalizing interest rates changed and paid by banks. Although the Chinese action was overshadowed yesterday I view China starting to more aggressively ease their monetary policy as having far greater implications than whether or not the US is going to embark on another round of quantitative easing. China is the growth engine of the global economy as well as the oil and commodity growth engine of the world. If the Chinese government can jump start their economy demand for oil and the broader commodity complex is going to rise and have an impact on the forward supply & demand balances and thus the price.
On the other hand as we have seen over the last several years quantitative easing has artificially supported oil and commodity prices based almost solely on a perception view that those actions were and are inflationary. Oil consumption has been continuing to decline in both the US and the EU in spite of aggressive quantitative easing programs in the US, EU and UK. So yes if any of the major developed world central banks announce new rounds of quantitative easing oil and commodity prices will rise ...at least in the early stages. However, QE by itself will not result in any growth spurt in oil consumption and in fact unless the developed economies start to grow at a much stronger pace than they have over the last several years I would expect oil consumption to remain flat at best and possibly even continue to decline further.
So how do we position our trading and hedging books going forward? As I said in yesterday's newsletter I have upgraded my thinking from bearish for oil to neutral on a combination of real action by the Chinese to stimulate their economy and an increasing likelihood of easing by the US and Europe as well as a growing view that some solution to Spain and Greece will emerge over the next several weeks. I have not taken the next step in upgrading to a bullish viewpoint as the risk of nothing getting done is still a possibility.
The underlying problems in both the US and Europe have not changed and are both bearish for just about all risk asset markets. The more negative the macroeconomic data turns out to be over the next several weeks the higher the likelihood that the US Fed and the ECB will embark on new monetary easing programs. Thus we may be entering a period where bad economic news gets a positive reaction in the markets while neutral to good news may be discounted as it could lead to status quo insofar as any new actions by the Central Bankers.
I also believe that the upcoming Greek elections will result in the pro bailout party taking control and thus resulting in the EU and Greece dodging a bullet for another three to six months. I also expect the EU to come up with some form of bailout program for the Spanish banks as well as instituting some form of bank deposit guarantees to avoid any major run on the EU banks in countries with debt issues looming. I think this will all be a positive for the markets but again there is still sizeable risk that what I just described is not the outcome. Another reason for just a neutral bias at the moment. The guessing and projecting will be all but eliminated over the next three weeks as all of the aforementioned events move into the reality mode.
By Dominick Chirihella - Fri 08 Jun 2012 07:50:55 CT
Nat Gas has stabilized after yesterday's strong sell-off on a missed injection report. I must admit I think yesterday's injection report was a lot more constructive that how the market interpreted the report and subsequently traded around the outcome. The only bearish aspect of the report was the fact that the injection came in about 6 BCF greater than the consensus projections but still well within the range of projections. It also was well below both last year and the five year average resulting in the overhang in inventory narrowing for the twelfth week in a row. So overall the current fundamentals after the report remain much as they were before the report and maybe a tad improved.
With the stabilizing of prices today (so far) the market is still settling into the $2.25 to $2.50/mmbtu trading range. I expect this trading range to remain in play for the next month or so at least and possibly longer if demand from coal to Nat Gas switching holds and producers adds further to cuts in production. The lower end of the trading range is being supported by the coal to gas switching demand as well as exports to Mexico...which is at the highest level in seven years. Cuts have been occurring but I still think the industry will have to cut further to avoid a premature filling of storage.
In the latest EIA weekly Nat Gas report they showed that U.S. pipeline exports to Mexico reached 1,867 million cubic feet per day (MMcf per day) on Tuesday, June 5, according to data from BENTEK Energy LLC (Bentek). This is the highest daily volume of U.S. exports to Mexico in the 7.5 years for which Bentek has data available. Pipeline exports from Texas usually make up around 75 percent of the total U.S. pipeline exports to Mexico, while exports from the other Southwestern border states make up the balance.
U.S. exports to Mexico have displayed strong growth since 2011, as Mexico increased its natural gas-fired power generation amid declining domestic natural gas production. Strength in U.S. supply, as well as relatively low natural gas prices, have made U.S. natural gas an attractive option for Mexico.
In addition Total consumption for the report week registered an overall decline, with a decrease in power sector demand offsetting increases in other sectors. According to estimates from Bentek, domestic natural gas consumption fell by 2.8 percent from last week, driven by a decline of 10.1 percent in power sector consumption. Residential/commercial and industrial sector consumption ended the week up 9.3 percent and 1.3 percent, respectively. For all sectors, consumption exceeded levels for the same week last year.
Total supply for the week registered an overall decline of 1.3 percent, reflecting a similar drop in dry gas production. According to Bentek estimates, domestic weekly dry gas production was 1.3 percent lower than the previous week (although 2.6 percent above the same time last year). Imports from Canada also rose modestly (1.5 percent), with increases in shipments to the West and Midwest offsetting declines in the Northeast. For the week, imports from Canada stand 19.3 percent above year-ago volumes. Liquefied natural gas (LNG) sendout dropped sharply, down 32.7 percent from last week; sendout volumes remain well below (73.5 percent) year-ago levels.
At the moment the Nat Gas market is being driven by the fundamentals unlike many other commodities that are very much impacted by the eternals of Europe and elsewhere. The market is still overbalanced but not as much as it was earlier in year during the warmest winter in years. Demand is growing from coal to gas switching and from exports (see above). In addition we are now in the early stages of the summer cooling season with temperatures for the next several weeks projected to be above normal and thus resulting in some additional Nat Gas demand to meet cooling requirements. Furthermore we are also not yet into the hurricane season. This is the least predictable of all but there is exposure to supply if this year's season results in damaging storms in the Nat Gas rich portion of the US Gulf of Mexico.
How deep the producing sector is going to have to cut to avoid hitting maximum storage capacity prior to the end of the injection season is not easily determined. So far for the first 12 weeks of the injection season inventories have been building at about 73% of last year's level. Certainly to the extent that the next three months perform as the last three months very large cuts will not be required. However, I do not think injections will underperform as much as they have and more cuts will be needed.
I am keeping my view at neutral and keeping my bias at neutral with an eye toward the upside now that Nat Gas has moved back to much more representative levels that are in sync with current fundamentals. The surplus is still narrowing in inventory versus both last year and the five year average but could lead to a premature filling of storage during the current injection season. However, I now believe that we may see other producers starting to signal a cut in production. We may still see lower prices (thus the basis for my bias) but I think the sellers are losing momentum.
With what is looking like a transition toward more stimulus/easing programs starting to surface around the world I am upgrading my oil view to neutral with one eye toward the bullish side. I am starting to expect the oil complex to settle into the $80 to $90/bbl trading range basis WTI and $95 to $105/bbl basis Brent. At the moment it is not so much that the current fundamentals have changed it is more related to the fact that the market sentiment is changing as participants move into the perception mode based on more stimulus which could result in an improvement of the forward fundamentals from a demand perspective.
Yesterday's trading was partially driven by a surprise move by the Chinese government to lower short term interest rates coupled with the US Fed FOMC disappointing the QE3 watchers. Many market players were expecting Bernanke to signal his hand as to what action the Fed is likely to take at the June 28 - 29 FOMC meeting. Much like the head of the ECB the day before Bernanke's comment's were very open ended with no specific commitment or bias toward another round of QE. There was no conclusion or signal one way or the other as to whether or not QE3 is on the table. His comments can mostly be summed up by ...the Fed will take whatever measures are required. In the end the market did not like the vagueness of his comments and selling hit the market for the remainder of the session as the Chinese interest rate cut was overshadowed and continues to be overshadowed into today's trading session.
The last few days of trading have primarily been driven by the perception that a round of global stimulus may be on the way along with a growing view that there may be a solution to some of the EU issues...in particular the Spanish banks. In fact just this morning Germany said that aid instruments are ready if Spain applies for them. The problem facing the trading and investing community is on one hand the global economy is slowing in all corners of the world while sovereign debt issues are still evolving in Europe which is simply bearish for all risk asset markets. On the other hand there is a growing view that the Central Bankers of the world are going to crank up the printing presses and attempt to inflate their way out of some of the pending issues while trying to jump start the global economy.
So far China is the only major global economy to actually show their hand by cutting short term interest rates while liberalizing interest rates changed and paid by banks. Although the Chinese action was overshadowed yesterday I view China starting to more aggressively ease their monetary policy as having far greater implications than whether or not the US is going to embark on another round of quantitative easing. China is the growth engine of the global economy as well as the oil and commodity growth engine of the world. If the Chinese government can jump start their economy demand for oil and the broader commodity complex is going to rise and have an impact on the forward supply & demand balances and thus the price.
On the other hand as we have seen over the last several years quantitative easing has artificially supported oil and commodity prices based almost solely on a perception view that those actions were and are inflationary. Oil consumption has been continuing to decline in both the US and the EU in spite of aggressive quantitative easing programs in the US, EU and UK. So yes if any of the major developed world central banks announce new rounds of quantitative easing oil and commodity prices will rise ...at least in the early stages. However, QE by itself will not result in any growth spurt in oil consumption and in fact unless the developed economies start to grow at a much stronger pace than they have over the last several years I would expect oil consumption to remain flat at best and possibly even continue to decline further.
So how do we position our trading and hedging books going forward? As I said in yesterday's newsletter I have upgraded my thinking from bearish for oil to neutral on a combination of real action by the Chinese to stimulate their economy and an increasing likelihood of easing by the US and Europe as well as a growing view that some solution to Spain and Greece will emerge over the next several weeks. I have not taken the next step in upgrading to a bullish viewpoint as the risk of nothing getting done is still a possibility.
The underlying problems in both the US and Europe have not changed and are both bearish for just about all risk asset markets. The more negative the macroeconomic data turns out to be over the next several weeks the higher the likelihood that the US Fed and the ECB will embark on new monetary easing programs. Thus we may be entering a period where bad economic news gets a positive reaction in the markets while neutral to good news may be discounted as it could lead to status quo insofar as any new actions by the Central Bankers.
I also believe that the upcoming Greek elections will result in the pro bailout party taking control and thus resulting in the EU and Greece dodging a bullet for another three to six months. I also expect the EU to come up with some form of bailout program for the Spanish banks as well as instituting some form of bank deposit guarantees to avoid any major run on the EU banks in countries with debt issues looming. I think this will all be a positive for the markets but again there is still sizeable risk that what I just described is not the outcome. Another reason for just a neutral bias at the moment. The guessing and projecting will be all but eliminated over the next three weeks as all of the aforementioned events move into the reality mode.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group