This is the second edition of What’s Hot, a biweekly feature that identifies the most important factors impacting hydrocarbon energy markets, with an emphasis on natural gas, NGLs and crude oil.
Low natural gas prices remain in center stage, with the price in NYMEX’s electronic session today falling to $2.55/MMbtu, down another $0.12/MMBtu or 4.5%. The floor was closed for MLK.
“This is a situation that has never been seen before.” Quote in Bloomberg from friend Kyle Cooper, director of research for IAF Advisors in Houston last week. “Supplies may reach a seasonal record of 2.4 trillion cubic feet in March, which is when heating demand usually ends and producers begin piping more gas into storage, Cooper said. Unless production falls or cold weather bolsters demand, prices will drop to $2.40 per million Btu, and perhaps below $2, as gas overflows storage caverns and clogs pipelines, he said. This is a situation that has never been seen before," Cooper said. "If we hit 2.4 trillion, you're looking at storage capacity constraints by July or August where you literally have system problems because the system is so full."
With prices headed toward what seems to be sub-$2.00 and an unprecedented storage overhang, fingers are being crossed for some kind of demand response. $2.00 should get some material displacement (fuel switching) of coal going on the power side. Perhaps a little additional usage from industrials. Some gas may even be injected into storage, since NOV is still $.54 above FEB. Could shut-ins be a factor? Don’t think so. See my blog entry from Jan 12.
In crude and refined products markets, the story is about refinery capacity in the Northeast. More than half of that capacity is scheduled be shut down over the next few months, due to low margins resulting from limited access to cheap domestic crude oil supplies. There was a good article last week on this in FuelFix, the Houston Chronicle blog, predicting higher prices for heating oil and other products.
Makes you wonder if low gas prices and higher heating oil prices might accelerate switching.
How ‘bout that Euro? “As the EURO weakens, oil prices generally come down a bit. Basically a stronger dollar means OPEC’s revenue is worth more….” Michael Lynch, Strategic Energy & Economic Research on JAN 10. Dollar is stronger since. Crude oil is still below $100 ($99.68 today) even with Iran bouncing around. So watch that EURO.
