WEEKLY ENERGY MARKET UPDATE:
Friday (3/23) energy settlements:
April NYMEX closed: $7.269
Summer ’07: $7.67, Winter ’07-’08: $9.30
The NYMEX one-year strip $8.35, 2-year strip $8.38, 3-year $8.28
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.61, Last Summer: $6.33
Last winter: $7.16
May Crude oil: $62.28, #2 oil $1.71
Mark Twain said that history doesn’t repeat itself, but it rhymes. As gas settled last week at $7.269, it is worth recalling that both a year and two years ago, gas was 7.467 and 7.255 respectively at this time and in both years after we made an April high, prices cratered into June expiration. Meanwhile, May gas has settled below its close on March 23rd in 5 of the last 6 years.
The EIA reported a storage INJECTION last week of 17 Bcf. LNG imports are at an all-time record high, and gas storage holders are refilling storage at every opportunity to profit from the nearly $3 spread between cash price and the January futures price. From a technical perspective, the run up in prices last week only closed the price gap I mentioned a week ago, and the rally stopped at a 50% retracement from January’s high; a classic technical trading move. In the two prior weeks, April gas declined $0.16 per week before gaining $0.34 this week which is why they call it trading, I guess.
Cash gas is weak as circus lemonade, and speculators are increasing their short positions, which is what you generally see before you make a low. Remain patient and unless your company’s purchasing model requires you to buy longer term at the end of the quarter, don’t buy yet. Let’s face it, if some market participants believe that many corporate and municipal buying plans require purchases to be made at this time, rest assured they will attempt to profit from it.
Most people are good and fair folks who disdain the minority who would manipulate markets to enrich themselves at the expense of the greater good. So, it comes as no surprise that the Senate committee probing energy market manipulation has received an outpouring of unsolicited informants from the gas industry reporting their own experiences with price manipulation and offering their ideas about how to provide better oversight.
My only concern is about a real supply shortage this year is in gasoline. Refiners have done a splendid job of increasing capacity out of old units, especially in light of the “Baskin & Robbins” selection of fuel specifications they have to provide. World demand for gasoline continues to grow and in the short term, we’ll have the unhealthy situation of dampening demand through higher prices rather than meeting it with adequate supply.
Some industry experts ask, where is the logic when the government has fought two wars over foreign oil in the past 15 years yet they won’t fight for oil independence? If they’re serious about the subject, it’s time to ramp up government spending on research for methane hydrates, which are estimated to hold 200,000 Tcf. The government took the lead in research for deepwater drilling. Scientists informed on the subject believe that $100 million per year over the next5 years would let us know if hydrates are economically viable. That’s less than we spend in you know where in a month. The tax benefits we give to “farm aid projects” like ethanol and biodiesel are comparable to the investment required to fully research hydrates, and the aforementioned are adding to the natural gas supply problem instead of being part of the solution. In short, these expert’s say that it is time to take a leadership role in our energy future. Where do you stantd?
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, March 26, 2007
Monday, March 19, 2007
3-19-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (3/16) energy settlements:
April NYMEX closed: $6.924
Summer ’07: $7.29, Winter ’07-’08: $8.92
The NYMEX one-year strip $7.97, 2-year strip $8.07, 3-year $8.01
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.61, Last Summer: $6.33
Last winter: $7.16
April Crude oil: $57.13, #2 oil $1.69
LNG supplies continue to be unseasonably high with average daily send outs over 2.5 Bcfd last week which combined with milder weather to give us net daily injections into storage. Since 2000, we have ended the winter season with storage levels as low as 642 Bcf in’03 and as high as 1,695 Bcf last year. The average level has been1,134 B’s. We’re at 1,516 B’s as of March 9th and are on track to be just above the average by the end of March.
Last week, natural gas settled below the weekly trend line that has supported prices since September ’06, providing impetus for a lower expiration of the April contract and a buying opportunity for summer gas, before the 2nd quarter run up. The $6.55 area offers formidable support for April gas but once breached, $6.38 would close a gap left on Jan. 19th. I advise that you raise previous trigger prices to begin scaling in summer purchases off of these April prices.
Imperial Oil now says that Canada’s 1.2 Bcfd Mackenzie Gas Pipeline will cost nearly twice as much as previously projected and will begin flowing gas at least two years later than planned, with 2014 now the start-up date. Costs are estimated at $16.2 billion Canadian.Every aspect from pipe cost to engineering is higher. Considering that an 80 mile Transco expansion project planned next year had to source pipe out of Greece, it’s hard to imagine how projects like Mackenzie or the mammoth Alaskan Gas Pipeline would ever be completed economically or without disrupting other gas projects worldwide.
Previously barred from ownership of seats on the NYMEX, an affiliate of D. E. Shaw Company became the first hedge fund to gain membership on the exchange.
While speculators can exacerbate volatility in a tight natural gas market, they are not responsible for the underlying problems that put us in this state. They didn’t restrict drilling offshore and on federal lands, nor delay or kill the construction of LNG terminals. They didn’t persuade our youth over the last 15 years to study computer science instead of petroleum engineering which has lead to the industry’s manpower shortage. The secular bull market in natural gas is the latest of the boom and bust cycles that have always been a part of the energy market. The fundamental problems of this market are slowly improving but until this “big ship” turns around, speculators can use events like weather as their launching pad to expand volatility. This is why I focus each week on “technical” aspects of gas price activity, because until fundamental changes cause the hedge funds to move out of gas, you need to know what triggers their buying and selling. It is also why you need to support the IECA, APGA and Senator Bingaman’s efforts to create limpid markets in ALL gas trading platforms, so we can see their positions.
Not that it’s about the oil, but Iraqi leaders are trying to develop an oil revenue sharing plan based on distributing revenue by population, which is thought to be 20% Sunni, 20% Kurds, and 60% Shiite. Iraq has 80 known oil fields, 65 of which will be bid out for development contracts once they can settle on the split.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (3/16) energy settlements:
April NYMEX closed: $6.924
Summer ’07: $7.29, Winter ’07-’08: $8.92
The NYMEX one-year strip $7.97, 2-year strip $8.07, 3-year $8.01
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.61, Last Summer: $6.33
Last winter: $7.16
April Crude oil: $57.13, #2 oil $1.69
LNG supplies continue to be unseasonably high with average daily send outs over 2.5 Bcfd last week which combined with milder weather to give us net daily injections into storage. Since 2000, we have ended the winter season with storage levels as low as 642 Bcf in’03 and as high as 1,695 Bcf last year. The average level has been1,134 B’s. We’re at 1,516 B’s as of March 9th and are on track to be just above the average by the end of March.
Last week, natural gas settled below the weekly trend line that has supported prices since September ’06, providing impetus for a lower expiration of the April contract and a buying opportunity for summer gas, before the 2nd quarter run up. The $6.55 area offers formidable support for April gas but once breached, $6.38 would close a gap left on Jan. 19th. I advise that you raise previous trigger prices to begin scaling in summer purchases off of these April prices.
Imperial Oil now says that Canada’s 1.2 Bcfd Mackenzie Gas Pipeline will cost nearly twice as much as previously projected and will begin flowing gas at least two years later than planned, with 2014 now the start-up date. Costs are estimated at $16.2 billion Canadian.Every aspect from pipe cost to engineering is higher. Considering that an 80 mile Transco expansion project planned next year had to source pipe out of Greece, it’s hard to imagine how projects like Mackenzie or the mammoth Alaskan Gas Pipeline would ever be completed economically or without disrupting other gas projects worldwide.
Previously barred from ownership of seats on the NYMEX, an affiliate of D. E. Shaw Company became the first hedge fund to gain membership on the exchange.
While speculators can exacerbate volatility in a tight natural gas market, they are not responsible for the underlying problems that put us in this state. They didn’t restrict drilling offshore and on federal lands, nor delay or kill the construction of LNG terminals. They didn’t persuade our youth over the last 15 years to study computer science instead of petroleum engineering which has lead to the industry’s manpower shortage. The secular bull market in natural gas is the latest of the boom and bust cycles that have always been a part of the energy market. The fundamental problems of this market are slowly improving but until this “big ship” turns around, speculators can use events like weather as their launching pad to expand volatility. This is why I focus each week on “technical” aspects of gas price activity, because until fundamental changes cause the hedge funds to move out of gas, you need to know what triggers their buying and selling. It is also why you need to support the IECA, APGA and Senator Bingaman’s efforts to create limpid markets in ALL gas trading platforms, so we can see their positions.
Not that it’s about the oil, but Iraqi leaders are trying to develop an oil revenue sharing plan based on distributing revenue by population, which is thought to be 20% Sunni, 20% Kurds, and 60% Shiite. Iraq has 80 known oil fields, 65 of which will be bid out for development contracts once they can settle on the split.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, March 12, 2007
3-12-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (3/9) energy settlements:
April NYMEX closed: $7.083
Summer ’07: $7.454, Winter ’07-’08: $8.98
The NYMEX one-year strip $8.09, 2-year strip $8.14, 3-year $8.06
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.61, Last Summer: $6.33
Last Winter: $7.16
April Crude oil: $60.02, #2 oil $1.71
Traders will view last week’s settle below a trend line of daily support as bearish, although failure to close below the weekly trend line that intersected last week at $7.02 probably leaves room for a lot more volatility this week. Last week, the gap at $7.51 was filled and this week’s decline left a gap at $7.33 that will be resistance. The steepness of the weekly line puts this week’s intersection at $7.153 so the bulls have a little tougher position to defend. Market momentum is bearish.
Fundamentally, US supplies have increased with an all-time one day record LNG send out of 3.3 Bcf last week courtesy of UK prices remaining in the $3 range. A milder weather forecast nationwide also bodes for lower prices in the short term.
With technical and fundamental indicators predicting lower prices, why was Friday’s settlement the highest price ever for April gas at this time of year? Why is the summer strip $0.27 higher than it was this time last year, and the one year over $8.00, when the past 12 year’s average settlement price was $6.61? Fear mongers can project with near certainty that this hurricane season will be worse than last and that global warming will cause more gas demand for power that will draw from storage that has fallen below year ago levels. That’s all conjecture, but one bullish fact is that Canadian gas exports to the US are declining as tar sands extraction consumes more gas, and as rising operating and drilling costs are causing our northern neighbors to shut in low volume wells and hold off on drilling new wells.
Still, there is too much premium built into future prices and I recommend that you continue to wait to make longer term purchases. There is significant support in the April contract at $6.50 and that is a prudent place to set triggers to buy some future gas. But, if that doesn’t hold, a retest of the $5.50 range would become the next target.
Looking ahead, the proposed $45B buy out of TXU is wrapped in “green” concern about reducing 11 proposed coal fired power plants to only 3 and fueling the rest with natural gas. Goldman Sachs helped arrange the deal and that alerted my intuition. I’m all for a cleaner environment and my generation needs to improve its record, but I’ve wondered what the next act for the hedge funds would be ever since they plunged into natural gas trading. The logical step is to own or control utility assets as a further hedge for their commodity bets. Arbitraging physical storage against gas futures gives them added optionality to lower their risks. Then toss in their choice to build more gas fired plants and the option to use them at will, along with some greenhouse gas credits to trade, and they’ve got a pat hand. So, while we’re caught up in a debate about transparency which will probably be resolved by more voluntary disclosures, I’m betting that the minds of the fund managers are already wondering, “How can we corner the market on wind power?”
In fairness, Goldman Sachs’ management has shown a strong commitment toward environmental improvements, even to the point of providing only hybrid limousines for its execs.
Lastly, if mention of hurricanes earlier peeked your concern, then you may be interested in knowing that hurricane futures will now be traded on the exchange. Futures will sell based on the severity of a storm which is determined by both wind speed and overall storm size. This is unlike the category size commonly used to rate hurricanes which only takes into account the wind speed. Katrina was a size 19 storm by this new system. The futures contract value will be $1000 per point per contract. This means that if you purchase a hurricane futures contract for a size 19 hurricane, and another Katrina size storm hits, the futures contract seller would pay out $19,000. The cost to buy a futures contract will float in the market. This will be a popular financial option for insurance carriers to hedge their risk against, and it will be interesting to see how others may utilize it.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (3/9) energy settlements:
April NYMEX closed: $7.083
Summer ’07: $7.454, Winter ’07-’08: $8.98
The NYMEX one-year strip $8.09, 2-year strip $8.14, 3-year $8.06
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.61, Last Summer: $6.33
Last Winter: $7.16
April Crude oil: $60.02, #2 oil $1.71
Traders will view last week’s settle below a trend line of daily support as bearish, although failure to close below the weekly trend line that intersected last week at $7.02 probably leaves room for a lot more volatility this week. Last week, the gap at $7.51 was filled and this week’s decline left a gap at $7.33 that will be resistance. The steepness of the weekly line puts this week’s intersection at $7.153 so the bulls have a little tougher position to defend. Market momentum is bearish.
Fundamentally, US supplies have increased with an all-time one day record LNG send out of 3.3 Bcf last week courtesy of UK prices remaining in the $3 range. A milder weather forecast nationwide also bodes for lower prices in the short term.
With technical and fundamental indicators predicting lower prices, why was Friday’s settlement the highest price ever for April gas at this time of year? Why is the summer strip $0.27 higher than it was this time last year, and the one year over $8.00, when the past 12 year’s average settlement price was $6.61? Fear mongers can project with near certainty that this hurricane season will be worse than last and that global warming will cause more gas demand for power that will draw from storage that has fallen below year ago levels. That’s all conjecture, but one bullish fact is that Canadian gas exports to the US are declining as tar sands extraction consumes more gas, and as rising operating and drilling costs are causing our northern neighbors to shut in low volume wells and hold off on drilling new wells.
Still, there is too much premium built into future prices and I recommend that you continue to wait to make longer term purchases. There is significant support in the April contract at $6.50 and that is a prudent place to set triggers to buy some future gas. But, if that doesn’t hold, a retest of the $5.50 range would become the next target.
Looking ahead, the proposed $45B buy out of TXU is wrapped in “green” concern about reducing 11 proposed coal fired power plants to only 3 and fueling the rest with natural gas. Goldman Sachs helped arrange the deal and that alerted my intuition. I’m all for a cleaner environment and my generation needs to improve its record, but I’ve wondered what the next act for the hedge funds would be ever since they plunged into natural gas trading. The logical step is to own or control utility assets as a further hedge for their commodity bets. Arbitraging physical storage against gas futures gives them added optionality to lower their risks. Then toss in their choice to build more gas fired plants and the option to use them at will, along with some greenhouse gas credits to trade, and they’ve got a pat hand. So, while we’re caught up in a debate about transparency which will probably be resolved by more voluntary disclosures, I’m betting that the minds of the fund managers are already wondering, “How can we corner the market on wind power?”
In fairness, Goldman Sachs’ management has shown a strong commitment toward environmental improvements, even to the point of providing only hybrid limousines for its execs.
Lastly, if mention of hurricanes earlier peeked your concern, then you may be interested in knowing that hurricane futures will now be traded on the exchange. Futures will sell based on the severity of a storm which is determined by both wind speed and overall storm size. This is unlike the category size commonly used to rate hurricanes which only takes into account the wind speed. Katrina was a size 19 storm by this new system. The futures contract value will be $1000 per point per contract. This means that if you purchase a hurricane futures contract for a size 19 hurricane, and another Katrina size storm hits, the futures contract seller would pay out $19,000. The cost to buy a futures contract will float in the market. This will be a popular financial option for insurance carriers to hedge their risk against, and it will be interesting to see how others may utilize it.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, March 5, 2007
3-5-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (3/2) energy settlements:
April NYMEX closed: $7.243
Summer ’07: $7.57, Winter ’07-’08: $9.02
The NYMEX one-year strip $8.17, 2-year strip $8.19, 3-year $8.11
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.61, Last Summer: $6.33, Last Winter: $7.16
April Crude oil: $61.64, #2 oil $1.758
Natural gas traders saw bearish technical indicators occur last week. Gas reversed from the highest price in the April gas contract since December to settle lower than the previous week, and settled below the 20 week moving average after trading above it for 6 weeks. That left a daily bearish divergence in both the RSI and MACD. You may recall my mention of a bullish divergence in crude a few weeks ago that preceded its recent rally. Traders will also be watching a critical ascending trend line that has provided price support since last fall. That line intersects just above $7.00 this week and a settlement beneath it could lead to mass selling that would take gas to the lower end of its trading range. Over the last 10 months prices have traded below $6 during 7 of them. Why not during March? Wait on making future purchases and keep your triggers in place to buy summer gas.
The volume of funds flowing into commodities in recent years is staggering. In the Goldman Sachs Commodity Index (GSCI) alone assets soared from $15 billion in 2003 to almost $70 billion in 2006, and appears to be headed for $110 billion in 2007.
Since Iran nationalized its oil industry 18 years ago it produces only 3.9 MMBD (of which 2.5MM are exported), versus over 6 MMBD in the '70s, although it sits on 11% of the world's oil reserves, second only to Saudi Arabia. Oil sales of $47 B in 2006 generated half of the government's revenue, but lack of refining capacity means that Iran imports 40% of its gasoline, while spending $20B per year on gasoline subsidies to keep pump prices at $0.35/gallon. Cheap fuel encourages usage so there is double-digit demand growth, requiring the country to import 170,000 barrels of gasoline a day. Venezuela and Nigeria may be headed in the same direction in the next decade as they pursue nationalization of their oil and gas industries.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (3/2) energy settlements:
April NYMEX closed: $7.243
Summer ’07: $7.57, Winter ’07-’08: $9.02
The NYMEX one-year strip $8.17, 2-year strip $8.19, 3-year $8.11
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.61, Last Summer: $6.33, Last Winter: $7.16
April Crude oil: $61.64, #2 oil $1.758
Natural gas traders saw bearish technical indicators occur last week. Gas reversed from the highest price in the April gas contract since December to settle lower than the previous week, and settled below the 20 week moving average after trading above it for 6 weeks. That left a daily bearish divergence in both the RSI and MACD. You may recall my mention of a bullish divergence in crude a few weeks ago that preceded its recent rally. Traders will also be watching a critical ascending trend line that has provided price support since last fall. That line intersects just above $7.00 this week and a settlement beneath it could lead to mass selling that would take gas to the lower end of its trading range. Over the last 10 months prices have traded below $6 during 7 of them. Why not during March? Wait on making future purchases and keep your triggers in place to buy summer gas.
The volume of funds flowing into commodities in recent years is staggering. In the Goldman Sachs Commodity Index (GSCI) alone assets soared from $15 billion in 2003 to almost $70 billion in 2006, and appears to be headed for $110 billion in 2007.
Since Iran nationalized its oil industry 18 years ago it produces only 3.9 MMBD (of which 2.5MM are exported), versus over 6 MMBD in the '70s, although it sits on 11% of the world's oil reserves, second only to Saudi Arabia. Oil sales of $47 B in 2006 generated half of the government's revenue, but lack of refining capacity means that Iran imports 40% of its gasoline, while spending $20B per year on gasoline subsidies to keep pump prices at $0.35/gallon. Cheap fuel encourages usage so there is double-digit demand growth, requiring the country to import 170,000 barrels of gasoline a day. Venezuela and Nigeria may be headed in the same direction in the next decade as they pursue nationalization of their oil and gas industries.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
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