WEEKLY ENERGY MARKET UPDATE:
Friday (7/20) energy settlements:
August NYMEX gas: $6.446
Summer: August-October ’07: $6.55, Winter ’07-’08: $8.49
The NYMEX one-year strip $7.85, 2-year strip $8.24, 3-year $8.30
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.951, Last Summer: $6.33
Last winter: $7.16
August Crude oil: $75.79, #2 oil $2.09
Gas storage, at 2.692 Tcf is about one full month ahead of the 5-year average for this time of year, and working gas in storage is likely to end July at the highest level ever. Last July’s heat required a peak day burn of 34.5 Bcf to generate power. This July’s max day has been 29.5 and although the CDD days have varied greatly by region, overall gas consumption for power generation has been lower in ’07 than ’ 06, so storage injections have been 76% higher than last July. July LNG imports set a new all-time record at 3.3 Bcf/d, but shipments should decline in August as European prices become more attractive. A long term marker to watch; Canadian imports are off 7% this year.
As bearish as the fundamentals seem, the technical indicators point to a rebound in prices. Non-Commercials are extremely oversold and the Commercials hold their largest net long position since last November’s rally. Last week’s pit trading opened and closed at $6.44, a weekly doji, which has nearly always indicated a change in price direction. A fun fact; last year’s Q3 low was $6.44, and it was in the August contract, occurring on July 6th.
Crude oil prices continue to rise like there is nothing to stop them from retesting the old NYMEX high of $77.95, but unleaded gasoline and heating oil both traded lower last week. My guess is that traders are long crude and short nat gas. If I’m correct, the inevitable crude sell-off will be the trigger to the nat gas rally.
You should own up to 50% of your future gas needs through January by now. Will price go lower this week, or will prices rally now, and then trade lower near Labor Day if there are no Gulf storms? Probably not to the former question, and probably yes to the latter if there are no storms, but I’d buy insurance right now anyway.
The big story in natural gas is last week’s opening of the Independence Hub. This engineering marvel is located in 8,000 feet of water 123 miles SE of Biloxi, Miss. It is the deepest production platform ever installed and also is the world's largest offshore natural gas processing facility. The Hub will deliver 1 Bcf/d by late 2007.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, July 23, 2007
Saturday, July 14, 2007
7-16-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (7/13) energy settlements:
August NYMEX gas: $6.662
Summer: August-October ’07: $6.79, Winter ’07-’08: $8.47
The NYMEX one-year strip $7.86, 2-year strip $8.16, 3-year $8.21
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.951, Last Summer: $6.33
Last winter: $7.16
August Crude oil: $73.93, #2 oil $2.111
Gas traded to a new Q3 low of $6.33 last week as non-commercial traders increased their net short positions to extreme levels, before short covering rallied gas on Friday. Commercials increased their net long positions; always a sign that prices will begin to rally. But any rally will be contained by a healthy set of fundamental conditions. As of the week ending 7/6, the EIA reported 2.625 Tcf of gas already in storage. Even though last week’s reported 106 Bcf injection included a 10 Bcf reclassification of base gas to working storage, we still need less then a 39 Bcf per week average injection to reach last year’s all-time record level. Projected injections for the new two week are 68 Bcf (reflecting power generation usage during the hot weather) and 89 Bcf for the week ending 7/19. This is an opportunity to buy some future gas for needs through January.
Better gas market transparency appears to be in our future. The Senate’s Permanent Subcommittee on Investigations was told by ICE CEO Jeffrey Sprecher, that he would have “no objections” to being brought under the same regulatory rules as the NYMEX, as long as all of the OTC trading platforms were also included in the reporting requirements. Some of the CFTC commissioners finally broke ranks with the Director and admitted that the current system was responsible for the excessive speculation by Amaranth, but Acting Director, Walter Lukken, who took over the job after former Director Reuben Jeffery resigned prior to his scheduled testimony, held the party line that speculators cannot adversely affect trading. A house bill for better market transparency and elimination of the “Enron exemption” for OTC trading has been drafted for presentation in the US House. A lot of hard work has gone into this by the APGA, IECA, and hopefully many of you. Thanks, and here’s hoping for passage in both houses.
Crude oil remains stronger than new rope as inventories decline worldwide last week. With OPEC sending no signal to increase output, the pressure remains to retest the all-time previous high. Unleaded prices declined due to better than expected gains in inventories in spite of the BP refinery outage in the US.
A report released last week by the International Energy Agency stated what most industry participants intuit, that energy demand is growing in developed nations as people become accustomed to higher price and return to their previous trends, but the real growth is coming from developing nations as everything from refrigeration, automobiles and low cost airlines consume more oil products, and an oil shortage looms within 5 years. World oil consumption is growing at a steady 2.2% annually while we must replace over 3 million barrels per day annually to offset declines in mature fields. The report says that by 2010, OPEC will be very tight on spare capacity and by 2012 demand will be limited by higher prices. We are certainly in a secular bull market for commodities and oil and gas prices will increase substantially in the next decade.
One major concern about future oil and gas development is the concentration of reserves in national oil companies. One only has to remember the sorry state of former Soviet Union production when Yeltsin let in US oilmen, or see the demise of the Iranian oil industry to understand the inefficiencies of the State run companies. Democracy under Yeltsin proved to be a Wild West asset grab by the Oligarchs, so Putin lead the bloodless coup that put the KGB back in charge of the country and since then he has steadily brought energy assets back under Russian control. Oligarchs who played ball got to keep their jobs at a reduced level, while the renegades sit in prison cells over “tax issues.” He has kicked out one major oil company after another on contractual technicalities, raising fears of more inefficiencies in future production capabilities at a time when the world sorely needs every barrel. But lately, a new paradigm seems to be taking shape whereby the value of outsider expertise is being recognized, and major oil companies can have minority ownership in individual properties. Last week, Gazprom struck a deal with Total on an arctic gas field. Two years ago I called Putin the most important new oil sheik in the world. Now he has to prove if he can be a smart oilman too.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (7/13) energy settlements:
August NYMEX gas: $6.662
Summer: August-October ’07: $6.79, Winter ’07-’08: $8.47
The NYMEX one-year strip $7.86, 2-year strip $8.16, 3-year $8.21
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.951, Last Summer: $6.33
Last winter: $7.16
August Crude oil: $73.93, #2 oil $2.111
Gas traded to a new Q3 low of $6.33 last week as non-commercial traders increased their net short positions to extreme levels, before short covering rallied gas on Friday. Commercials increased their net long positions; always a sign that prices will begin to rally. But any rally will be contained by a healthy set of fundamental conditions. As of the week ending 7/6, the EIA reported 2.625 Tcf of gas already in storage. Even though last week’s reported 106 Bcf injection included a 10 Bcf reclassification of base gas to working storage, we still need less then a 39 Bcf per week average injection to reach last year’s all-time record level. Projected injections for the new two week are 68 Bcf (reflecting power generation usage during the hot weather) and 89 Bcf for the week ending 7/19. This is an opportunity to buy some future gas for needs through January.
Better gas market transparency appears to be in our future. The Senate’s Permanent Subcommittee on Investigations was told by ICE CEO Jeffrey Sprecher, that he would have “no objections” to being brought under the same regulatory rules as the NYMEX, as long as all of the OTC trading platforms were also included in the reporting requirements. Some of the CFTC commissioners finally broke ranks with the Director and admitted that the current system was responsible for the excessive speculation by Amaranth, but Acting Director, Walter Lukken, who took over the job after former Director Reuben Jeffery resigned prior to his scheduled testimony, held the party line that speculators cannot adversely affect trading. A house bill for better market transparency and elimination of the “Enron exemption” for OTC trading has been drafted for presentation in the US House. A lot of hard work has gone into this by the APGA, IECA, and hopefully many of you. Thanks, and here’s hoping for passage in both houses.
Crude oil remains stronger than new rope as inventories decline worldwide last week. With OPEC sending no signal to increase output, the pressure remains to retest the all-time previous high. Unleaded prices declined due to better than expected gains in inventories in spite of the BP refinery outage in the US.
A report released last week by the International Energy Agency stated what most industry participants intuit, that energy demand is growing in developed nations as people become accustomed to higher price and return to their previous trends, but the real growth is coming from developing nations as everything from refrigeration, automobiles and low cost airlines consume more oil products, and an oil shortage looms within 5 years. World oil consumption is growing at a steady 2.2% annually while we must replace over 3 million barrels per day annually to offset declines in mature fields. The report says that by 2010, OPEC will be very tight on spare capacity and by 2012 demand will be limited by higher prices. We are certainly in a secular bull market for commodities and oil and gas prices will increase substantially in the next decade.
One major concern about future oil and gas development is the concentration of reserves in national oil companies. One only has to remember the sorry state of former Soviet Union production when Yeltsin let in US oilmen, or see the demise of the Iranian oil industry to understand the inefficiencies of the State run companies. Democracy under Yeltsin proved to be a Wild West asset grab by the Oligarchs, so Putin lead the bloodless coup that put the KGB back in charge of the country and since then he has steadily brought energy assets back under Russian control. Oligarchs who played ball got to keep their jobs at a reduced level, while the renegades sit in prison cells over “tax issues.” He has kicked out one major oil company after another on contractual technicalities, raising fears of more inefficiencies in future production capabilities at a time when the world sorely needs every barrel. But lately, a new paradigm seems to be taking shape whereby the value of outsider expertise is being recognized, and major oil companies can have minority ownership in individual properties. Last week, Gazprom struck a deal with Total on an arctic gas field. Two years ago I called Putin the most important new oil sheik in the world. Now he has to prove if he can be a smart oilman too.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Monday, July 9, 2007
7-9-07 Energy Update
WEEKLY ENERGY MARKET UPDATE:
Friday (7/6) energy settlements:
August NYMEX gas: $6.444
Summer: August-October ’07: $6.58, Winter ’07-’08: $8.323
The NYMEX one-year strip $7.67, 2-year strip $7.98, 3-year $8.05
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.951, Last Summer: $6.33
Last winter: $7.16
August Crude oil: $72.81, #2 oil $2.095
Last week’s storage report put us at 2.521 Tcf, requiring an average weekly injections of only 42 Bcf to reach last year’s levels. That, along with a forecast of milder weather and no tropical activity encouraged bears to sell more gas contracts, as prices approached year end ‘06 lows. The price gap between $6.55 and $6.36 was closed on Friday, and the only question remaining is how much lower we will trade before gas supports. A gap between $5.97 and $6.00 would be the next logical target, and although the weekly RSI is in “extreme” territory, it has certainly been lower in the past before gas markets rallied. But, a rally should occur in the near term.
Simultaneously, #2 oil closed the week at an all-time high while crude oil is within sight of its previous top. Clearly, the funds are buying crude and selling nat gas. We just don’t know to what extent. The CFTC filed a restraining order against Lake Shore Asset Management Ltd. for refusing to permit the CFTC to inspect its records. One can only suppose that Lake Shore’s refusal is due to a combination of violations and being on the wrong side of this long oil/short gas trade.
The market has provided us an opportunity to buy gas. The 20% decline from the Q2 high betters the 5 year average by 2%, and while it appears it will trade lower, this is a good place to buy gas through December or January. The 12-month strip is within $0.01 of it’s late December low. The current premium of the diminishing summer ‘07 strip above a year ago is $.48, but the current discount of the winter ‘08 strip below a year ago is $1.20. We are still in a $5.50-$8.00 trading range and over the last 72 weeks prices have settled above $8 only 15 times and below $5.50 only 12 times. During the last 53 months prices have traded below $6.04 in 31 of 53 month, or about 60% of the time. Pigs get fat, hogs get eaten. Buy some gas at this time.
Last week, BP took delivery of the British Emerald, the world's largest LNG carrier at 155,000 cubic meters, or the equivalent of about 8,800 Dts per day for 365 days. Its dual-fuel technology allows the diesel engines to run on "boil-off" gases from the cargo tanks or on diesel fuel. She is 288m long with a breadth of 44.2m.
China has banned further expansion of its corn ethanol industry, after a 40% increase in pork prices over the past year. In the U.S. land for corn produces only 50 gallons of gasoline equivalent per acre per year, versus an annual gasoline demand of 135 billion gallons. New U.S. ethanol plants coming on line could take 30 percent of next year's corn crop for auto fuel, as well as add to our natural gas supply problems. It’s a farm aid program that no one counting on farmer’s votes is willing to eliminate. Even without ethanol demand, farmers will need to increase crop yields over time due to population growth, and as the growing number of affluent consumers in the world increase their demand for meat. Although sugarcane is 3 times more efficient than corn for ethanol production, ethanol from sugarcane is more expensive than gasoline when crude is $65/Bbl.
South Korea has confirmed deposits of methane hydrates off its coast and their exploration-research program to develop the reserves kicks off this fall with at least 5 wells. South Korea hopes to develop the technology for using gas hydrates by 2015.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
Friday (7/6) energy settlements:
August NYMEX gas: $6.444
Summer: August-October ’07: $6.58, Winter ’07-’08: $8.323
The NYMEX one-year strip $7.67, 2-year strip $7.98, 3-year $8.05
(Bid and Ask for these strips vary greatly)
Last 12-month average NYMEX: $6.951, Last Summer: $6.33
Last winter: $7.16
August Crude oil: $72.81, #2 oil $2.095
Last week’s storage report put us at 2.521 Tcf, requiring an average weekly injections of only 42 Bcf to reach last year’s levels. That, along with a forecast of milder weather and no tropical activity encouraged bears to sell more gas contracts, as prices approached year end ‘06 lows. The price gap between $6.55 and $6.36 was closed on Friday, and the only question remaining is how much lower we will trade before gas supports. A gap between $5.97 and $6.00 would be the next logical target, and although the weekly RSI is in “extreme” territory, it has certainly been lower in the past before gas markets rallied. But, a rally should occur in the near term.
Simultaneously, #2 oil closed the week at an all-time high while crude oil is within sight of its previous top. Clearly, the funds are buying crude and selling nat gas. We just don’t know to what extent. The CFTC filed a restraining order against Lake Shore Asset Management Ltd. for refusing to permit the CFTC to inspect its records. One can only suppose that Lake Shore’s refusal is due to a combination of violations and being on the wrong side of this long oil/short gas trade.
The market has provided us an opportunity to buy gas. The 20% decline from the Q2 high betters the 5 year average by 2%, and while it appears it will trade lower, this is a good place to buy gas through December or January. The 12-month strip is within $0.01 of it’s late December low. The current premium of the diminishing summer ‘07 strip above a year ago is $.48, but the current discount of the winter ‘08 strip below a year ago is $1.20. We are still in a $5.50-$8.00 trading range and over the last 72 weeks prices have settled above $8 only 15 times and below $5.50 only 12 times. During the last 53 months prices have traded below $6.04 in 31 of 53 month, or about 60% of the time. Pigs get fat, hogs get eaten. Buy some gas at this time.
Last week, BP took delivery of the British Emerald, the world's largest LNG carrier at 155,000 cubic meters, or the equivalent of about 8,800 Dts per day for 365 days. Its dual-fuel technology allows the diesel engines to run on "boil-off" gases from the cargo tanks or on diesel fuel. She is 288m long with a breadth of 44.2m.
China has banned further expansion of its corn ethanol industry, after a 40% increase in pork prices over the past year. In the U.S. land for corn produces only 50 gallons of gasoline equivalent per acre per year, versus an annual gasoline demand of 135 billion gallons. New U.S. ethanol plants coming on line could take 30 percent of next year's corn crop for auto fuel, as well as add to our natural gas supply problems. It’s a farm aid program that no one counting on farmer’s votes is willing to eliminate. Even without ethanol demand, farmers will need to increase crop yields over time due to population growth, and as the growing number of affluent consumers in the world increase their demand for meat. Although sugarcane is 3 times more efficient than corn for ethanol production, ethanol from sugarcane is more expensive than gasoline when crude is $65/Bbl.
South Korea has confirmed deposits of methane hydrates off its coast and their exploration-research program to develop the reserves kicks off this fall with at least 5 wells. South Korea hopes to develop the technology for using gas hydrates by 2015.
Please feel free to call me to discuss any questions you may have about your specific energy plan.
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