Energy Prospectus

3:30 pm : Crude oil got a boost from a decline in the dollar during today's pit trade. The energy component lifted from its session low of $88.31 per barrel and steadily climbed higher, settling just below its session high of $91.79 per barrel. Despite selling pressure seen in previous sessions following little-changed FOMC and ECB statements, crude finished the week with a 1.4% gain at $91.40 per barrel.

Natural gas extended yesterday's losses as it stayed below the $3.00 per MMBtu level. It managed to trade up to a session high of $2.95 per MMBtu but was unable to keep the momentum and fell back into negative territory. Natural gas closed the week 5.0% lower at $2.88 per MMBtu as yesterday's weak inventory data contributed to the losses.

I believe natural gas will drift lower through mid-October but should stay above $2.50/mmbtu. Assuming we get a normal winter, I believe natural gas will run up to over $3.50/mmbtu by mid-January. - Dan

Citi Energy Research Group comments on last week's market:

E&P shares retreated last week (-1.2%) as the broader markets
managed a slight increase (S&P +0.4%) alongside a slight gain by oil prices but a
decline in natural gas prices. The week started out with high expectations for central
bank action but both the ECB and the Fed failed to deliver. At the same time,
economic data in the U.S. was mixed. The July Purchasing Managers Index (PMI)
and Consumer Confidence increased, both exceeding expectations, while existing
home prices rose 2.2% in May. On the other hand, manufacturing data was weak
and below expectations with the ISM index revealing a second consecutive month
of contraction in July. But on Friday, the Department of Labor reported a much
larger-than-anticipated increase in U.S. jobs in July even though the unemployment
rate ticked up to 8.3%. Thus, while the increase in jobs was viewed as positive, the
increase in the unemployment rate renewed speculation that the Fed would still
implement a third round of quantitative easing this year. In Europe, the economic
data was more negative with those seeking employment rising 123k to a recordhigh
17.8mm even as the eurozone unemployment rate remained at 11.2%. Also,
manufacturing activity contacted in Germany, France and Italy during July. But
China provided a glimmer of hope with the government hinting that it would take
action in the second half of this year to revive economic growth.
A much larger-than-consensus draw in U.S. crude and products across the board
along with simmering geopolitical tensions in the Middle East, largely offset the
disappointment of no Fed or definitive ECB action. Thus, WTI spot prices rose 1.4%
to ~$91/Bbl while Brent prices gained 2.1% to ~$109/Bbl with Brent prices getting
some added support from North Sea maintenance down time. Meanwhile, natural
gas price momentum was undermined by a larger-than-consensus storage injection
figure for the prior week and an outlook for some moderation in the recent extreme
heat across much of the country. Thus, the front-month NYMEX natural gas futures
contract declined by 4.4% to $2.88/MMBtu while the composite spot cash price fell
~1.0% to $3.03/MMBtu.