WEEKLY ENERGY MARKET UPDATE:
Friday (5/18) energy settlements:
June NYMEX gas: $7.944
Summer: June-October '07: $8.22, Winter '07-'08: $9.74
The NYMEX one-year strip $8.88, 2-year strip $8.92, 3-year $8.75
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
June Crude oil: $64.94, #2 oil $1.915
The Bank of Montreal announced that brokers hid an additional $200 M in gas trading losses, bringing their total losses to the $700 M range and it was obvious from trading activity last week that those positions have not been closed out. Through it all, gas remains range bound as it managed to settle for the week below $8 even after trading into a daily price gap left since Dec. '06. Last week's high was $8.23. The gap extends from $8.13 to $8.35. No doubt, it will be tested again this week as BoM is forced to buy more contracts.
Friday's trade to $8.23 represented a 43% increase over the Q1 low. The average Q2 run up since 2002 is 48% (50% over life of NYMEX). Last year, only 5 months after experiencing $15 gas, the Q2 high only reached $8.28, a 28% increase over the Q1 low, and that was at a time when fear was justifiable since we had production deficiencies. Still there are always those who say, "It's different this time." The most recent of those no longer work for BoM. I make this point because I'm hearing what we all hear every year at this time. "Summer will be hotter than normal." "Hurricane season will be worse than normal." "Storage won't be refilled and we'll run out of gas next winter." Maybe the funds see enough new traders in this market to take prices higher on fear alone. Since there's no transparency in the OTC markets and no chance of legislation requiring reporting before this hurricane and cooling season is over, we can't know about their furtive trading tactics. All I know is this doesn't look like a bull market. Open interests are declining and in fact June interests are roughly half of what May's were a week before expiration.
Truth of the matter is that the gas industry is in better shape than it was in 2005. Storage was at 1.599 Bcf then and it is 1.842 Bcf now. We've got more production, more LNG, and best of all more experience. We've got very good infrastructure, so if the fear mongers are correct and we have a genuinely bad weather event, the fundamentally improved infrastructure will make this a briefer price spike than in '05-'06.
The average NYMEX settlement price for 2005 was $8.62. The average settlement price for the 12 months immediately following Katrina and Rita was $9.16. The future strip prices have all of that built into them, and that's a recipe for more hedge fund failures if the fear mongers can't force the market higher.
What should consumers do? Keep your existing triggers in place to make additional purchases and don't chase gas during the 2nd quarter. You'll be better off in the spot market for your remaining gas needs than buying forward at these prices. I expect June expiration in the $7.50-7.60 range.
The single most important factor that will stabilize or even lower natural gas prices by the end of this decade will be the pipelines providing access to "stranded" gas in the Paradox, Piceance and Uinta Basins of Colorado and Utah. Their store of tight sand gas and shale gas deposits represent 1/3rd of US reserves, but the traditional pipeline paths relegated these reserves to "peaking" gas for the west coast markets. Kinder Morgan's Rockies Express Pipeline (REX) will take these reserves to mid-con and eastern markets by the winter of 2008, adding value for the producers while lowering costs for consumers even in areas where REX doesn't flow. There is light at the end of this tunnel. If you'd like detailed information about this 1,678-mile pipeline with the capacity to move 1.8 Bcfd to eastern markets, just do a search on Rockies Express Pipeline.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, May 21, 2007
Monday, May 14, 2007
5-14-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (5/11) energy settlements:
June NYMEX gas: $7.899
Summer: June-October ’07: $8.132, Winter ’07-’08: $9.654
The NYMEX one-year strip $8.80, 2-year strip $8.84, 3-year $8.74
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
June Crude oil: $62.37, #2 oil $1.8823
Rumors of another non-commercial trader with an oversized position circled the gas markets last week. Big lot trades on ICE fiercely protecting $7.60 and corresponding trades propping up the NYMEX have many a sage trader thinking that somebody is holding a huge bullish position. The speculator must be counting on an early and active hurricane season because fundamentals don’t support such exuberance.
Gas storage, at 1.747 Tcf, is 200 Bcf ahead of the 5-year average. On the west coast, linepack on some systems is creating the potential for high-inventory operational flow orders. In the Mid-Continent, storage injection programs offer the only support to otherwise declining cash markets. US gas production is up and drilling activity during Q1 2007 set a 21-year high with 11,771 well completions in the 90 day period.
LNG receipts are at record highs while storage additions provide greater supply certainty and we’ve added 12.3 Bcfd of new pipeline capacity in the last year. Meanwhile, production gains in Texas, Oklahoma, and Wyoming are taking some pressure off of GOM producers in the event of another disruption.
All that said, the hedge funds rule this market and without reporting requirements for large traders in the OTC, we are somewhat at their mercy. Daily volatility has declined to $0.25 and we need to keep an eye on it. Prices historically rally out of low daily volatility.Keep triggers in place to buy additional future gas on a front month trade in the $7.25-7.30 range. The gas charts suggest that a breakout, either up or down, from the current range will occur in early June.
Unleaded gasoline remains the leader of the energy pack and it is the only commodity I view as potentially “scarce.” We need to keep an eye on it as it could trigger movement in the rest of the energy complex.
Oil and gas are the oxygen supply of the industrialized world.That’s why it was a blow to Europe when Turkmenistan and Kazakhstan signed a deal with Vladimir Putin to pipe their enormous gas reserves to Russia rather than directly to Europe. Turkmenistan has the 5th largest gas reserves in the world. Russia sells gas domestically at subsidized prices, then markets excess gas to Europe at market rates. The coup for Putin enriches Gazprom coffers while it forces Europe to look to LNG for supply diversity, which exacerbates long term US supply problems.
Here’s a shocker: Two Alaskan oil executives and three Alaskan politicians, including a former speaker of the House, were charged with bribery over the proposed gas pipeline from the North Slope to the Lower48 states. I suspect it is the tip of the iceberg. Alaskan gas should be processed as LNG or as gas-to-liquids and shipped to the most profitable markets, but the $20B plus boondoggle would make too many crooks wealthy and when it proves uneconomic, the American taxpayer willbail it out, so the project trudges forward.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (5/11) energy settlements:
June NYMEX gas: $7.899
Summer: June-October ’07: $8.132, Winter ’07-’08: $9.654
The NYMEX one-year strip $8.80, 2-year strip $8.84, 3-year $8.74
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
June Crude oil: $62.37, #2 oil $1.8823
Rumors of another non-commercial trader with an oversized position circled the gas markets last week. Big lot trades on ICE fiercely protecting $7.60 and corresponding trades propping up the NYMEX have many a sage trader thinking that somebody is holding a huge bullish position. The speculator must be counting on an early and active hurricane season because fundamentals don’t support such exuberance.
Gas storage, at 1.747 Tcf, is 200 Bcf ahead of the 5-year average. On the west coast, linepack on some systems is creating the potential for high-inventory operational flow orders. In the Mid-Continent, storage injection programs offer the only support to otherwise declining cash markets. US gas production is up and drilling activity during Q1 2007 set a 21-year high with 11,771 well completions in the 90 day period.
LNG receipts are at record highs while storage additions provide greater supply certainty and we’ve added 12.3 Bcfd of new pipeline capacity in the last year. Meanwhile, production gains in Texas, Oklahoma, and Wyoming are taking some pressure off of GOM producers in the event of another disruption.
All that said, the hedge funds rule this market and without reporting requirements for large traders in the OTC, we are somewhat at their mercy. Daily volatility has declined to $0.25 and we need to keep an eye on it. Prices historically rally out of low daily volatility.Keep triggers in place to buy additional future gas on a front month trade in the $7.25-7.30 range. The gas charts suggest that a breakout, either up or down, from the current range will occur in early June.
Unleaded gasoline remains the leader of the energy pack and it is the only commodity I view as potentially “scarce.” We need to keep an eye on it as it could trigger movement in the rest of the energy complex.
Oil and gas are the oxygen supply of the industrialized world.That’s why it was a blow to Europe when Turkmenistan and Kazakhstan signed a deal with Vladimir Putin to pipe their enormous gas reserves to Russia rather than directly to Europe. Turkmenistan has the 5th largest gas reserves in the world. Russia sells gas domestically at subsidized prices, then markets excess gas to Europe at market rates. The coup for Putin enriches Gazprom coffers while it forces Europe to look to LNG for supply diversity, which exacerbates long term US supply problems.
Here’s a shocker: Two Alaskan oil executives and three Alaskan politicians, including a former speaker of the House, were charged with bribery over the proposed gas pipeline from the North Slope to the Lower48 states. I suspect it is the tip of the iceberg. Alaskan gas should be processed as LNG or as gas-to-liquids and shipped to the most profitable markets, but the $20B plus boondoggle would make too many crooks wealthy and when it proves uneconomic, the American taxpayer willbail it out, so the project trudges forward.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, May 7, 2007
5-7-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (5/05) energy settlements:
June NYMEX gas: $7.938
Summer: June-October ’07: $8.157, Winter ’07-’08: $9.667
The NYMEX one-year strip $8.82, 2-year strip $8.85, 3-year $8.73
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
June Crude oil: $61.92, #2 oil $1.8309
The short term subjects worth discussing this week are the daily doji we saw on Friday, the persistence of the current trading range and the lingering clean up of the Bank of Montreal’s trading losses.
Long time readers know that a doji is when the opening and closing price for a timeframe is the same, and it usually means a change in the price trend is impending. Our current trading range has been contained on the topside around $8 since February 2006, and this is the 8th time this $8.00 mark has been tested since then. You remember the stat, we’ve only had 11 daily closes above $8 and 12 daily closes below $5.50 in the last 64 weeks. Is the streak over and we’re off to a higher trading range? I think not and expect slightly lower prices with the traditional decline into July 4th ahead of us.
Market characteristics at week’s end were indicative that BoM was still a buyer as they continue unwinding half a billion dollars worth of bad trades. I don’t see prices declining until they finish buying to cover their shorts.
Fundamentals remain very good with storage filled to 19% above the 5-year average and a $2.00/DT profit for storage holders to harvest if they inject now. Production and LNG supplies are up year over year. Notwithstanding the Middle East malaise which provides a steady bullish backdrop, it is mostly fear of the upcoming hurricane season that keeps gas prices high, and that’s the crap shoot for consumers. Absent a seers knowledge of the weather, I can only advise that any price spike related to this hurricane season should be lower and of a shorter duration than in 2005.
Do not buy longer term gas now. Gas has expired above Friday’s closing price only once since Feb ‘06, and the average expiration price for the past 36 months is $7.52. ($6.72 for the last 12 consecutive months.)
A subsidiary of Italy’s Eni paid Dominion Resources $4.76B, or $4.75/ Mcf equivalent for proved reserves and $2.71/Mcfe for all categories of reserves for gas and oil in the Gulf of Mexico, a price that surpasses other recent Gulf deals.
We’re going to have some serious second thoughts about supporting corn based ethanol production. The US has 116 ethanol distilleries, with 78 plants under construction and 7 undergoing expansion. If all the new plants and expansions come on line, total capacity will be above 12 billion gallons per year. Up to 95% of U.S. ethanol plants use natural gas boilers because they are 7 times cheaper than ones that burn coal and corn fields consume large quantities of ammonia, which comes from natural gas. Recent Raymond James research says the ethanol boom could boost U.S. gas demand by 1% over the next two years. A Pennsylvania farmer put it best, “It looks like we’re going to take the last six inches of Midwest topsoil and burn it in our gas tanks.”
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (5/05) energy settlements:
June NYMEX gas: $7.938
Summer: June-October ’07: $8.157, Winter ’07-’08: $9.667
The NYMEX one-year strip $8.82, 2-year strip $8.85, 3-year $8.73
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.72, Last Summer: $6.33
Last winter: $7.16
June Crude oil: $61.92, #2 oil $1.8309
The short term subjects worth discussing this week are the daily doji we saw on Friday, the persistence of the current trading range and the lingering clean up of the Bank of Montreal’s trading losses.
Long time readers know that a doji is when the opening and closing price for a timeframe is the same, and it usually means a change in the price trend is impending. Our current trading range has been contained on the topside around $8 since February 2006, and this is the 8th time this $8.00 mark has been tested since then. You remember the stat, we’ve only had 11 daily closes above $8 and 12 daily closes below $5.50 in the last 64 weeks. Is the streak over and we’re off to a higher trading range? I think not and expect slightly lower prices with the traditional decline into July 4th ahead of us.
Market characteristics at week’s end were indicative that BoM was still a buyer as they continue unwinding half a billion dollars worth of bad trades. I don’t see prices declining until they finish buying to cover their shorts.
Fundamentals remain very good with storage filled to 19% above the 5-year average and a $2.00/DT profit for storage holders to harvest if they inject now. Production and LNG supplies are up year over year. Notwithstanding the Middle East malaise which provides a steady bullish backdrop, it is mostly fear of the upcoming hurricane season that keeps gas prices high, and that’s the crap shoot for consumers. Absent a seers knowledge of the weather, I can only advise that any price spike related to this hurricane season should be lower and of a shorter duration than in 2005.
Do not buy longer term gas now. Gas has expired above Friday’s closing price only once since Feb ‘06, and the average expiration price for the past 36 months is $7.52. ($6.72 for the last 12 consecutive months.)
A subsidiary of Italy’s Eni paid Dominion Resources $4.76B, or $4.75/ Mcf equivalent for proved reserves and $2.71/Mcfe for all categories of reserves for gas and oil in the Gulf of Mexico, a price that surpasses other recent Gulf deals.
We’re going to have some serious second thoughts about supporting corn based ethanol production. The US has 116 ethanol distilleries, with 78 plants under construction and 7 undergoing expansion. If all the new plants and expansions come on line, total capacity will be above 12 billion gallons per year. Up to 95% of U.S. ethanol plants use natural gas boilers because they are 7 times cheaper than ones that burn coal and corn fields consume large quantities of ammonia, which comes from natural gas. Recent Raymond James research says the ethanol boom could boost U.S. gas demand by 1% over the next two years. A Pennsylvania farmer put it best, “It looks like we’re going to take the last six inches of Midwest topsoil and burn it in our gas tanks.”
Please feel free to call me to discuss any questions you may have about your specific energy plan.
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