WEEKLY ENERGY MARKET UPDATE
Friday (4/27) energy settlements:
May NYMEX gas expired: $7.508
June NYMEX gas: $7.831
Summer: June-October ’07: $8.063, Winter ’07-’08: $9.63
The NYMEX one-year strip $8.75, 2-year strip $8.77, 3-year $8.67
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
April Crude oil: $66.46, #2 oil $1.913
The March – May expiration prices of $7.547, $7.558 and$7.508 respectively, completed the tightest spread of these 3 months since the $0.04 range in 1998 and ties the $0.05 range of 1991, for the initial spring season of NYMEX gas trading. ’98 turned out to be the lowest priced and least volatile year of the late 90’s. The $7.50 price seems to have a feeling of market equilibrium, and incidentally the 40 month moving average is $7.52. The one year strip at $8.75 seems to have far too much insurance premium in it and I would defer longer range purchases for now.
The gas market immediately rose after the May expiration as traders piled on as soon as they found the Bank of Montreal in a losing bearish options strategy. BOM announced losses in gas trades in the $300-$400 million dollar range due to “reduced liquidity and lower volatility in the gas market during the 1st quarter.” (Last year, it was Mother Rock that collapsed a few weeks earlier.) Look for lower prices once this latest “crash and burn” incident is cleared away. 4 of the last 6 June contracts have reached their lows after becoming the prompt contract and coincident with contract expiration.
Meanwhile, crude retested its March 30th high of $66.70 after the Saudi government announced it had taken 172 Al Qaeda members into custody just as they were in the final stages of a well financed and sophisticated plan to attack its oil fields and an oil refinery. If crude can settle above this high, it should be off to test $75 again.Incidentally, when it did that last year, natural gas declined below $6.00.
June NYMEX gas closed $1.30 above the average settlement for April 27th for the last 3 yrs, yet the forward strip prices are all lower than this time over these last years. I think what that is telling me is that the present high prices are that result of the Bank of Montreal trading problems and that the market understands that we are better prepared to handle another Katrina-Rita disaster now than in 2005.
Oil giant Exxon Mobil Corp. kicked off 2007 with a 10% rise in profits, earning $9.3 billion in the January-March period. I hope you have a good year too.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, April 30, 2007
Monday, April 23, 2007
4-23-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (4/20) energy settlements:
May NYMEX gas: $7.381
Summer: May-October ’07: $7.70, Winter ’07-’08: $9.31
The NYMEX one-year strip $8.40, 2-year strip $8.48, 3-year $8.40
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.64, Last Summer: $6.33
Last winter: $7.16
May Crude oil expired: $63.38, #2 oil $1.83
Natural gas prices moved lower last week even as the EIA reported an April withdrawal from storage. Technical support is just under $7.25/Dt. We are in a good area to purchase additional May gas.
Two daily price gaps remain in the natural gas chart, one near $6.50 and another near $7.70. That seems exemplary of the volatility ahead for us, as the bulls and bears have clear targets before them.For the past two years, gas has traded lower during the month of May and with lots of gas in storage and mild weather in Europe to keep LNG flowing into the US, the fundamentals are in place for the June contract to trade lower after May expires this Thursday, but aggressive buyers shouldn’t get too greedy. Strong gasoline and crude prices will be supportive of the entire sector.
Add to your summer positions when the front month trades between $7.33 and $7.25 and keep triggers in place to buy further out if the front month should trade to $6.50.
Norway’s Snovhit LNG liquefaction facility will begin operation by end of 2007 with 240,000 DTs per day dedicated to Cove Point.
The American Geophysical Union, which publishes the “Geophysical Research Letters”, will release a short paper this Wednesday with an opinion that global warming will create upper atmosphere wind shear similar to that caused by El Nino that could reduce the number of hurricanes that form in the Atlantic Basin.
Fun fact: Meeting our future energy needs will require many alternative sources. Using photovoltaics alone, the US would require 17% of the planet's entire surface area, or 59% of the land to replace its current daily oil consumption. The entire world would require 40% of the entire planet's surface are, or 1.37 times the entire land area.
Nano technology developments in the petroleum industry may be equivalent to discovering another super giant field. Cleaner, more efficient diesel fuels are a growing priority for nano researchers. One company is already testing a nanoscale additive that can increase mileage up to 10% and reduce emissions. Others are working on cleaning up the diesel refining process. Researchers are in the early stages of developing solid nanocatalysts that can filter out harmful corrosives more efficiently and trap them for environmentally safer disposal.Here’s another reason we must support higher education at virtually any cost.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (4/20) energy settlements:
May NYMEX gas: $7.381
Summer: May-October ’07: $7.70, Winter ’07-’08: $9.31
The NYMEX one-year strip $8.40, 2-year strip $8.48, 3-year $8.40
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.64, Last Summer: $6.33
Last winter: $7.16
May Crude oil expired: $63.38, #2 oil $1.83
Natural gas prices moved lower last week even as the EIA reported an April withdrawal from storage. Technical support is just under $7.25/Dt. We are in a good area to purchase additional May gas.
Two daily price gaps remain in the natural gas chart, one near $6.50 and another near $7.70. That seems exemplary of the volatility ahead for us, as the bulls and bears have clear targets before them.For the past two years, gas has traded lower during the month of May and with lots of gas in storage and mild weather in Europe to keep LNG flowing into the US, the fundamentals are in place for the June contract to trade lower after May expires this Thursday, but aggressive buyers shouldn’t get too greedy. Strong gasoline and crude prices will be supportive of the entire sector.
Add to your summer positions when the front month trades between $7.33 and $7.25 and keep triggers in place to buy further out if the front month should trade to $6.50.
Norway’s Snovhit LNG liquefaction facility will begin operation by end of 2007 with 240,000 DTs per day dedicated to Cove Point.
The American Geophysical Union, which publishes the “Geophysical Research Letters”, will release a short paper this Wednesday with an opinion that global warming will create upper atmosphere wind shear similar to that caused by El Nino that could reduce the number of hurricanes that form in the Atlantic Basin.
Fun fact: Meeting our future energy needs will require many alternative sources. Using photovoltaics alone, the US would require 17% of the planet's entire surface area, or 59% of the land to replace its current daily oil consumption. The entire world would require 40% of the entire planet's surface are, or 1.37 times the entire land area.
Nano technology developments in the petroleum industry may be equivalent to discovering another super giant field. Cleaner, more efficient diesel fuels are a growing priority for nano researchers. One company is already testing a nanoscale additive that can increase mileage up to 10% and reduce emissions. Others are working on cleaning up the diesel refining process. Researchers are in the early stages of developing solid nanocatalysts that can filter out harmful corrosives more efficiently and trap them for environmentally safer disposal.Here’s another reason we must support higher education at virtually any cost.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, April 16, 2007
4-16-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (4/13) energy settlements:
May NYMEX gas: $7.801
Summer: May-October ’07: $8.11, Winter ’07-’08: $9.61
The NYMEX one-year strip $8.75, 2-year strip $8.74, 3-year $8.60
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.64, Last Summer: $6.33
Last winter: $7.16
May Crude oil: $63.63, #2 oil $1.90
Last week, natural gas made a “bearish” divergence in the weekly RSI (Relative Strength Index). In other words, prices moved higher than a week ago but the RSI didn’t confirm that advance by moving higher in lockstep. The significance is that before this recent price run up, gas made a “bullish” weekly divergence in the RSI. Prices traded lower but the RSI didn’t move lower. If natural gas doesn’t trade higher this week, then traders have a reason to sell off of this technical indicator. This may sound like modern witchcraft, but most funds trade gas off of technical analysis. Let’s face it, with storage levels near record highs and more supply than last year, this market didn’t take off because of bullish fundamentals.
Since 2000, the May gas contract has peaked between April 2nd and the 19th and for 60 weeks we’ve been range bound between $5.50 and $8.00 with only 11 daily closes above and 12 below. I expect the $8 resistance (or a quarter or so north of it) to contain this rally.
Don’t purchase gas here. Keep existing triggers in place to buy at lower levels.
125,000 acres of federal land in the San Juan Basin of Colorado was opened to coalbed methane drilling last week. This is a step in the right direction. Federal lands contain an estimated 187 trillion cubic feet of natural gas and 21 billion barrels of oil. That could supply all of America's households for 39 years, and represents more than 30 years worth of current Saudi imports
Due to soaring costs and a lack of experienced workers, Algeria, Africa's largest gas exporter, may scuttle a proposed gas-to-liquids plant. It would have provided 36,000 Bbl/day of GTL diesel fuel. In February, Qatar scrapped a similar GTL project for the same reasons.
Gas reserves are at their highest level in 28 years thanks to about 30,000 gas wells that were completed in the US last year. However, most of those wells were drilled onshore in shale, tight sands and coal seams which are all slow delivery reservoirs. So, despite increased drilling activity, daily US natural gas production is still falling. While the 2006 production volumes of publicly traded companies increased 6.3% over 2005, all of that increase is due to the return of production shut ins following hurricanes Katrina and Rita. Adjusted for the hurricanes, US production actually dropped 3.2% year-over-year, according to Raymond James. These declines have come amid virtually 100% utilization of gas rigs, along with increasing rig counts and improved drilling efficiencies.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (4/13) energy settlements:
May NYMEX gas: $7.801
Summer: May-October ’07: $8.11, Winter ’07-’08: $9.61
The NYMEX one-year strip $8.75, 2-year strip $8.74, 3-year $8.60
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.64, Last Summer: $6.33
Last winter: $7.16
May Crude oil: $63.63, #2 oil $1.90
Last week, natural gas made a “bearish” divergence in the weekly RSI (Relative Strength Index). In other words, prices moved higher than a week ago but the RSI didn’t confirm that advance by moving higher in lockstep. The significance is that before this recent price run up, gas made a “bullish” weekly divergence in the RSI. Prices traded lower but the RSI didn’t move lower. If natural gas doesn’t trade higher this week, then traders have a reason to sell off of this technical indicator. This may sound like modern witchcraft, but most funds trade gas off of technical analysis. Let’s face it, with storage levels near record highs and more supply than last year, this market didn’t take off because of bullish fundamentals.
Since 2000, the May gas contract has peaked between April 2nd and the 19th and for 60 weeks we’ve been range bound between $5.50 and $8.00 with only 11 daily closes above and 12 below. I expect the $8 resistance (or a quarter or so north of it) to contain this rally.
Don’t purchase gas here. Keep existing triggers in place to buy at lower levels.
125,000 acres of federal land in the San Juan Basin of Colorado was opened to coalbed methane drilling last week. This is a step in the right direction. Federal lands contain an estimated 187 trillion cubic feet of natural gas and 21 billion barrels of oil. That could supply all of America's households for 39 years, and represents more than 30 years worth of current Saudi imports
Due to soaring costs and a lack of experienced workers, Algeria, Africa's largest gas exporter, may scuttle a proposed gas-to-liquids plant. It would have provided 36,000 Bbl/day of GTL diesel fuel. In February, Qatar scrapped a similar GTL project for the same reasons.
Gas reserves are at their highest level in 28 years thanks to about 30,000 gas wells that were completed in the US last year. However, most of those wells were drilled onshore in shale, tight sands and coal seams which are all slow delivery reservoirs. So, despite increased drilling activity, daily US natural gas production is still falling. While the 2006 production volumes of publicly traded companies increased 6.3% over 2005, all of that increase is due to the return of production shut ins following hurricanes Katrina and Rita. Adjusted for the hurricanes, US production actually dropped 3.2% year-over-year, according to Raymond James. These declines have come amid virtually 100% utilization of gas rigs, along with increasing rig counts and improved drilling efficiencies.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, April 9, 2007
4-9-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (4/5) energy settlements:
May NYMEX gas: $7.607
May-October ’07: $7.90, Winter ’07-’08: $9.53
The NYMEX one-year strip $8.60, 2-year strip $8.62, 3-year $8.50
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.64, Last Summer: $6.33
Last winter: $7.16
May Crude oil: $63.92, #2 oil $1.86
There was little activity in natural gas during the holiday shortened week, except increased short covering by large speculators. It is noteworthy that the Q2 highs of the past two years were constructed during the 1st to 19th of April, with the May contract expiring lower than April each year. I remain a cautious bear and suggest that you purchase a portion of your gas needs for this summer and even through November purely as insurance when May gas trades down to the $7.25 area. I hate to recommend buying in the upper half of the current trading range, but there are abundant stories the bulls can use to leverage prices up this summer.
Declining production and rising domestic demand will combine to reduce Canadian gas exports to the US by nearly 1 Bcf/d this summer. Most of this should be offset by increased LNG imports as liquefaction capacity in Nigeria and Trinidad increases and as Equatorial Guinea joins the list of LNG exporting nations. By 2008, US imports could reach 3 Bcf/d with increased output from Norway and Nigeria. New supplies are expected in 2008 from Qatar, Yemen, and Russia, if those projects can be completed on schedule.
Cove Point will shut down its terminal for the entire month of June as part of a major expansion scheduled to come online in September 2008.
Elba Island received a favorable environmental review to expand its storage and liquefaction facilities as well as for construction of a 187-mile pipeline that will increase maximum send out to 2.115 Bcf/d and more than double its storage capacity. Completion date for all projects is December 2012.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (4/5) energy settlements:
May NYMEX gas: $7.607
May-October ’07: $7.90, Winter ’07-’08: $9.53
The NYMEX one-year strip $8.60, 2-year strip $8.62, 3-year $8.50
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.64, Last Summer: $6.33
Last winter: $7.16
May Crude oil: $63.92, #2 oil $1.86
There was little activity in natural gas during the holiday shortened week, except increased short covering by large speculators. It is noteworthy that the Q2 highs of the past two years were constructed during the 1st to 19th of April, with the May contract expiring lower than April each year. I remain a cautious bear and suggest that you purchase a portion of your gas needs for this summer and even through November purely as insurance when May gas trades down to the $7.25 area. I hate to recommend buying in the upper half of the current trading range, but there are abundant stories the bulls can use to leverage prices up this summer.
Declining production and rising domestic demand will combine to reduce Canadian gas exports to the US by nearly 1 Bcf/d this summer. Most of this should be offset by increased LNG imports as liquefaction capacity in Nigeria and Trinidad increases and as Equatorial Guinea joins the list of LNG exporting nations. By 2008, US imports could reach 3 Bcf/d with increased output from Norway and Nigeria. New supplies are expected in 2008 from Qatar, Yemen, and Russia, if those projects can be completed on schedule.
Cove Point will shut down its terminal for the entire month of June as part of a major expansion scheduled to come online in September 2008.
Elba Island received a favorable environmental review to expand its storage and liquefaction facilities as well as for construction of a 187-mile pipeline that will increase maximum send out to 2.115 Bcf/d and more than double its storage capacity. Completion date for all projects is December 2012.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, April 2, 2007
4-2-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (3/30) energy settlements:
May NYMEX gas: $7.73
May-October ’07: $8.024, Winter ’07-’08: $9.572
The NYMEX one-year strip $8.68, 2-year strip $8.63, 3-year $8.48
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.64, Last Summer: $6.33
Last winter: $7.16
May Crude oil: $65.87, #2 oil $1.879
The small withdrawal of 22 Bcf reported last week should be followed by an injection in the 30-40 Bcf range in the final week of March, which will close out the “traditional” withdrawal season around 1.55 Tcf, second only to last year’s 1.695, and well above the 1.134 average. But that’s only part of the story because the nearly $3.00/Dt spread between cash prices and the winter NYMEX provide storage holders a strong economic incentive to inject at every opportunity. As a result, storage inventories will continue to accrete while the added demand for gas will also keep prompt month NYMEX prices relatively high.
What Katrina and Rita taught us is the importance of maintaining high levels of storage. The “fear premium” in forward prices that consumers complain about also creates the financial incentive to fill storage which will help reduce the price spike from the next disaster as well as shorten the duration of the spike. Because of this, large gas consumers should look into “self-insuring” their gas costs. Set a baseline price of $7.50 or $8.00 and deposit money into a sinking fund each month prices are lower, withdrawing funds during periods when gas prices exceed your baseline. You can still hedge longer term if prices across the board fall below your baseline. Otherwise, you have to pay too much of a premium to insure your budget by hedging with NYMEX gas.
We have entered a period of historically bullish activity. The peak price for NYMEX gas during the 2nd Quarter since 2003 is 34% higher than the lowest price of the 1st Quarter. If I run that comparison for the life of the NYMEX gas contract, removing two anomalous years, it is 41%, and 51% if being inclusive. History is not a faultless guide for prognosticating, but it is by and large a very helpful one. Another fun fact is that the expiration prices of March, April and May gas have averaged within a few cents of each other throughout history, so don’t expect a blowout or a bargain with May gas.
Set triggers to buy forward gas when the May contract trades in the $7.25 to $7.30 range.
Since coal can typically absorb CO2 at five times the rate it releases methane, Composite Energy, a Scottish company developing coal-bed methane production is embarking on a two-year study to evaluate carbon dioxide storage in coal-beds as a way of enhancing methane recovery. While other CO2 storage projects store gas in an underground void or rock-matrix, this project will evaluate the ability of CO2 to chemically bond to coal while improving methane production. Now, you can’t say you didn’t learn something this week.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (3/30) energy settlements:
May NYMEX gas: $7.73
May-October ’07: $8.024, Winter ’07-’08: $9.572
The NYMEX one-year strip $8.68, 2-year strip $8.63, 3-year $8.48
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.64, Last Summer: $6.33
Last winter: $7.16
May Crude oil: $65.87, #2 oil $1.879
The small withdrawal of 22 Bcf reported last week should be followed by an injection in the 30-40 Bcf range in the final week of March, which will close out the “traditional” withdrawal season around 1.55 Tcf, second only to last year’s 1.695, and well above the 1.134 average. But that’s only part of the story because the nearly $3.00/Dt spread between cash prices and the winter NYMEX provide storage holders a strong economic incentive to inject at every opportunity. As a result, storage inventories will continue to accrete while the added demand for gas will also keep prompt month NYMEX prices relatively high.
What Katrina and Rita taught us is the importance of maintaining high levels of storage. The “fear premium” in forward prices that consumers complain about also creates the financial incentive to fill storage which will help reduce the price spike from the next disaster as well as shorten the duration of the spike. Because of this, large gas consumers should look into “self-insuring” their gas costs. Set a baseline price of $7.50 or $8.00 and deposit money into a sinking fund each month prices are lower, withdrawing funds during periods when gas prices exceed your baseline. You can still hedge longer term if prices across the board fall below your baseline. Otherwise, you have to pay too much of a premium to insure your budget by hedging with NYMEX gas.
We have entered a period of historically bullish activity. The peak price for NYMEX gas during the 2nd Quarter since 2003 is 34% higher than the lowest price of the 1st Quarter. If I run that comparison for the life of the NYMEX gas contract, removing two anomalous years, it is 41%, and 51% if being inclusive. History is not a faultless guide for prognosticating, but it is by and large a very helpful one. Another fun fact is that the expiration prices of March, April and May gas have averaged within a few cents of each other throughout history, so don’t expect a blowout or a bargain with May gas.
Set triggers to buy forward gas when the May contract trades in the $7.25 to $7.30 range.
Since coal can typically absorb CO2 at five times the rate it releases methane, Composite Energy, a Scottish company developing coal-bed methane production is embarking on a two-year study to evaluate carbon dioxide storage in coal-beds as a way of enhancing methane recovery. While other CO2 storage projects store gas in an underground void or rock-matrix, this project will evaluate the ability of CO2 to chemically bond to coal while improving methane production. Now, you can’t say you didn’t learn something this week.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
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