During a period of cold weather that is strangling the eastern half of the country, natural gas prices have gone down as production (supply) continues its record-breaking pace. The market is also digesting updated weather models that indicate the cold snap is turning to more normal temperatures in the latest 10-15 day outlooks. As it stands, the market sentiment has turned bearish which is reflected in money manager positions that have changed to net short (betting prices will go down).
For many, this recent market movement has created a buying opportunity for calendar years 2018-2020. Currently, they are trading at their lowest levels since March 2016 when the market hit 17-year low. This has pushed power strips down as well, creating opportunities for additional hedging.
Some of the bullish sentiment is due to the lack of recent demand. Last week we injected 2bcf into underground natural gas storage which is extremely rare for December. This narrows the deficit to the y-o-y and 5-year averages as depicted below.
Natural gas and power prices jumped in Europe after an explosion at one of the continent’s biggest gas hubs further tightened supplies during a cold snap.
Gas futures rose the most in more than eight years in Britain, which already is struggling to absorb the impact of a crack that shut down a North Sea pipeline network. After snow fell for two days in London, cooler-than-normal temperatures spread from the Alps to Scandinavia, raising demand for heating fuels. (bloomberg)
A Bloomberg story says that analysts view the dollar declining further in 2018 vs the Euro - by maybe 10% which follows this year's 12% declin- -which would help commodities one would assume. (Liquidity Energy)
With production growth and the current lack of strong demand, the deficit of total gas inventories vs last year and the 5yr avg is continuing to narrow. The current outlook for heating demand thru month end does present upside for prices, as gas-weighted degree days should be above seasonal averages over the next 15 days. (Spark Energy)
Since January 2018 became the prompt month on 11/29/17, the contract has lost ~50 cents (16%). Near-term weather forecasts are mixed, with the National Weather Service predicting below-average temperatures confined to the Northeast, a large consumer of natural gas for heating demand. However, the rest of the country is forecasted to experience warmer-than-average temperatures over the next two weeks, keeping a lid on demand for most of the country. (Direct Energy)
Highlights from EIA's December Short-Term Outlook
West Texas Intermediate (WTI) crude oil prices are forecast to average $4/b lower than Brent prices in 2018. After averaging $2/b lower than Brent prices through the first eight months of 2017, WTI prices averaged $6/b lower than Brent prices from September through November. (EIA)
U.S. dry natural gas production is forecast to average 73.5 billion cubic feet per day (Bcf/d) in 2017, a 0.7 Bcf/d increase from the 2016 level. EIA forecasts that natural gas production in 2018 will be 6.1 Bcf/d higher than the 2017 level. (EIA)
Total U.S. utility-scale solar electricity generating capacity at the end of 2016 was 22 GW. EIA expects solar capacity additions will bring total utility-scale solar capacity to 27 GW by the end of 2017 and to 30 GW by the end of 2018. (EIA)