Christmas Arrived Early for Natural Gas Bulls
Today’s Spotlight Market? -? Traders were eagerly awaiting this week?s Energy Information Administration?s (?EIA?) Gas storage report following the unexpectedly large 162 billion cubic feet draw reported the prior week. This week, traders and analysts were expecting a draw of 86 bcf, vs. the 5 year average of 76 bcf. However, the EIA disappointed Gas bulls by reporting that only 81 bcf of Gas was withdrawn. Gas supplies now stand at 3.533 trillion cubic feet, which is 3% below the 5-year average for this time of year.
Fundamentals? -? It sure looks like Natural Gas bulls were ?good? this year, as Santa has produced an early dose of winter weather for a large portion of the U.S. out of his bag of goodies. Current weather forecasts calling for below normal temperatures throughout most of the Midwest and East Coast for the next 2 weeks have supported Natural Gas prices, which are now trading at highs not seen in nearly 6 months.
The cold weather has increased heating demand for most of the country, which has spurred increased demand for Natural Gas — which is the largest fuel source used for heating in the U.S. Gas storage withdrawals have increased the past few weeks, leaving Gas inventories at 5-year lows for this time of year.
While the demand side of the equation for Natural Gas prices is bullish, the supply picture is much less so due to the huge production levels coming from shale formations. Gas and oil production from shale fields and more sophisticated drilling techniques have been game changers for U.S. energy production, and although current Gas supplies are well below record levels seen the past few years, Natural Gas output is also at record levels and may quickly replenish storage withdrawals once the winter heating seasons comes to a end.
Technical Notes? -? View Today’s Chart
Today?s technical notes will begin a year-end focus on some of the longer-term trends in both the commodity and financial markets, so today?s chart is a weekly continuation chart for Natural Gas futures for the past 20 years.? Notice that for most of the 1990?s, Natural Gas prices were relatively stable, with prices generally trading in a band between 2 and 4 dollars per million btu. However, the period of stable prices came to an end at the turn of the century, when the Natural Gas market became a volatile affair, with huge price spikes seen due to both weather and geopolitical concerns. However, the bursting of the commodity price ?bubble? in 2008 combined with the new era of energy production in the U.S. has had a calming effect on the Natural Gas market, with prices once again trading in a relatively narrow price band quite similar to the markets in early to mid-1990. Although, it appears that we shall not return to the era of violent price reactions anytime soon.? The potential for the U.S. to become a Natural Gas exporter with the opening of facilities to ship Liquefied Natural Gas (LNG) to both Asia and Europe could spell the end to ?cheap U.S. Gas? and potentially force prices closer to that seen in the global market.?
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