Record natural gas production, higher oil prices, and weak winter heating demand have come together to push the prompt month natural gas contract down 20% since the end of January. The market has moved past winter and turned its attention to robust production as well as end of winter natural gas storage forecasts. As of this morning, natural gas storage is almost 20% lower than last year and the five year average. Despite concerns over the storage deficit, record production increases and warm weather forecasts continue to temper those fears. As of last week, there are 35 more natural gas wells and 200 more oil rigs in production than one year ago.
As we look toward the spring and summer, the market is speculating that production increases will yield a healthy amount of natural gas going into the 2018 winter. This is keeping futures down for the moment, but we still need to see storage come back in line with the 5 year average as well as continue to experience weak demand for current price levels to remain or diminish further.
A shake up in the bond markets recently caused a stir, creating the largest down turn in the S&P 500 in two years. This seems to be expected as stock prices and valuations were growing at an outrageous rate, outpacing earnings. The equity markets have since bounced back, but the dollar has been anemic in its recovery. Since hitting its most recent low on January 25th, the dollar is struggling to regain momentum to the upside. The dollar is key indicator in commodity markets as they have an inverse relationship. Raw materials like metals and oil are especially correlated to the reserve currency of the world.
Over the next two weeks, weather for the major energy consuming regions are forecast to be well above normal.
Rig counts continue to increase with natural gas and oil rigs increasing 35% and 200% respectively y-o-y.