Recent seasonal averages on the CME NYMEX Henry Hub natural gas forward curve show just an 8 cents/MMBtu spread between next winter (2014/2015) and this summer (2014) – a number that provides very little incentive for storage injection. Things don’t look much better for storage spreads further out on the curve either with an average spread over the next 10 years of just 33 cents/MMBtu. Today we analyze storage spreads over the past 6 years.
The current forward curve (June 9,2014) for CME NYMEX Henry Hub gas futures shows prices at $4.645/MMBtu for July 2014 then increasing through January 2015 to $4.776/MMBtu before falling back to $4.636/MMBtu at the end of next winter in March 2015. Then they take a nosedive and drop 48 cents in April 2015. From that point out forward curve prices are lower than they have been over the past 6 years – falling $1.24/MMBtu lower than last year’s curve at this time by the end of 2023. And the curve is flat - seasonality in today’s curves is also a shadow of it’s former self. Today we look at natural gas forward curves over the past six years.
This week on Monday WTI prices crossed the $100/Bbl mark for the first time since the end of December (they closed at $100.37/Bbl yesterday February 12, 2014). Brent crude traded at a $19/Bbl premium to WTI at the end of November but the spread has fallen to less than $10/Bbl in recent weeks ($8.42/Bbl yesterday). One of the biggest concerns hanging over the crude market is the fear of oversupply – both inside and outside the US – with the forward curves pointing towards WTI at $78/Bbl and Brent at $90/Bbl by 2020. Today we provide an update on the crude market.
The CME natural gas futures market has been trading in a narrow 40 cent range between $3.40/MMBtu and $3.80/MMBtu since the end of the summer. The onset of winter and the first storage withdrawals last week (according to EIA) have done little to jump start prices. The prompt Henry Hub futures market closed at $3.702 yesterday (November 21, 2013). The dominating story remains increased supply from new production. Today we look at how supplies are weighing on spot prices and futures market speculation.
The ratio between crude oil and natural gas (NYMEX) futures yesterday was 27.7. That is crude prices in $/Bbl were 27.7 X natural gas prices in $/MMbtu. The ratio today is far higher than its historical norm of 7.5X before 2007. It started to increase in 2008 and reached 54 X last year when gas prices crashed below $2/MMBtu. This year the ratio has averaged 27 X and has shown no clear trend up or down. The ratio is important because it underpins two of the key features of the shale boom to the US economy – cheap energy in the form of natural gas and higher prices for refined product and petrochemical exports. Today we attempt to discern the future direction of the ratio.
The Brent premium to WTI has traded as wide as $23/Bbl this year but was down to 2 cnts/Bbl on Friday July 19, 2013. At one point during trading nearby WTI prices rose above Brent – the first time that’s happened in three years. Yesterday (July 22, 2013) WTI August expired at 106.91 - $1.14 lower than Brent September. Today we look at why the spread has narrowed so rapidly and whether it will stay that way.
The ratio between crude oil and natural gas (NYMEX) futures yesterday was 31.8. That is crude prices in $/Bbl were 31.8 X natural gas prices in $/MMbtu. In the 10 years from August 1997 to August 2007 the ratio averaged 7.5 X – that was the old world. Since August 2007 the ratio has averaged 19.4 X – with a dramatic rise during the last year to dizzying heights over 50 X. A major shift to high liquid hydrocarbon production has ensued. Now the futures market indicates the ratio will halve from 31 X to 15 X by 2020. Today we review the prospects for a return to a more normal crude to gas ratio.
September NYMEX natural gas closed up a nickel yesterday at $2.96/MMbtu. The January 2013 contract closed at $3.537 – a winter summer spread of $0.57/MMbtu, but the average seasonal spread in the futures market has fallen from $0.62/MMbtu just two years ago to $0.39/MMbtu this week. There was a time not that long ago when the winter-summer spread was measured in dollars. Now it seems to be fading into oblivion. Today we search for signs of seasonality in the forward curves.
So far this year WTI crude prices have fallen 22 percent from their highs in February 2012 to close at $85.99 /Bbl yesterday (Monday). Brent crude prices fell 21 percent over the same period to close at $99.73 /Bbl yesterday. WTI has traded at an average discount to Brent of $15 /Bbl this year. Historically WTI always traded at a slight premium to Brent. The crudes share similar qualities. In today’s blog we ask when will the WTI discount to Brent end, if ever?