Highlights of the Natural Gas Summary and Outlook for November 12, 2012 follow. The full report is available at the link below.
Natural Gas Summary and Outlook
- Price Action: Prices were quite contained with little overall movement. The December contract fell 5.1 cents (1.4%) to $3.503 on just a 13.8 cent range.
- Price Outlook: A continuation basis chart indicated a rare inside week, but this was only because the low November price. Basis the December contract, a new low was established. Considering the weather forecasts and the possibility of further net speculative liquidation, a new low is considered likely next week. The market will soon contend with a YOY storage deficit. Draws are now expected in coming weeks and the peak storage level has been established unless weather turns remarkably bearish. With a full winter ahead, the 11-15 day forecast remains a primary market driver. Quite simply, the extrapolation of the last days of the forecast to the end of the winter results in a huge range of end of season values. Thus, while simplistic, this thought process does seem to drive market action in November and even early December. As the winter progresses and the end of season storage range contracts, this sensitivity to varying weather forecasts will diminish. CFTC data indicated another decrease in the speculative net long position. Again, this was as of Tuesday and the weakness at the end of the week may have further reduced the position. Total open interest also continued to fall as of November 4. Further liquidation may precipitate more price weakness.
- Weekly Storage: US working gas storage rose 21 BCF for the week ending November 2. Current inventory levels of 3,929 BCF now rise 98 BCF (2.6%) above last year while surpassing the 5 year average by 246 BCF (6.7%).
- Storage Outlook: Considering the cooler temperatures across the country, withdrawals should begin and storage is still forecast to fall below year ago levels by late November or early December. Preliminary estimates for end of winter stock levels center very near 1,800 BCF. While well below the record 2012, this will remain a very high level to begin the 2013 injection season. However, with a full winter still ahead, the final inventory estimation is subject to substantial revision.
- Supply Trends: Total supply rose 1.2 BCF/D to 68.7 BCF/D. Higher US production and Canadian imports combined with lower Mexican exports to increase supply. 3rd quarter E&P company reports generally remain bearish with most projecting continued production growth. The US Baker Hughes rig count rose 6 to 1,806 as the 2012 trend resumed with increased oil activity counter balanced by lower natural gas. Canadian activity dropped and thus the total North American rig count still fell by 7 to 2,176, which now trails last year by 340. This is the largest YOY North American rig count deficit since January 2010. The higher efficiency US horizontal rig count fell 1 and at 1,104 falls 48 behind last year.
- Demand Trends: Total demand soared 7.0 BCF/D to 64.4 BCF/D. Lower power demand was more than offset increased R&C and industrial demand. Electricity demand fell 1,288 gigawatt-hrs to 68,718, which trails last year by 1,993 (2.8%) and the 5 year average by 1,865 (2.6%). The apparent drop in temperature adjusted power demand is considered a bearish factor.
- Other Factors: The S&P 500 index slipped as the equity markets are apparently uneasy after the US election results.
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