US Deep Freeze Translates into Short-Term Price Rally
Over the past few weeks natural gas has both plummeted and then reversed its course pushing the 12 month strip as low as $2.614, a 2.5 year low, before a sustained cold snap took hold pushing the strip back up to $2.878. During this time of volatility the back end of the curve also lost value, but has since normalized to pre-winter price levels. All power markets have shared similar movement to natural gas, but have not traded in as wide a range.
Today, the market has relaxed further showing us once again that even with record-breaking cold hitting the majority of the US, the market seems content with production projections and thus, the supply/demand balance remains in favor of the bears. This indicates the market expects production to remain strong and keep prices in check throughout the winter unless another sustained below-normal event further disrupts the supply/demand balance. Bottom-line, we are seeing a great amount of price action in the near term and if do not recover production-wise, there will be little price destruction come the spring.
Underground natural gas storage currently stands at 3,126 Bcf, this is a net decrease of 206Bcf from the prior week. This is a 5.8% deficit to the 5-year average and y-o-y storage levels. Despite the deficit to the year ago and 5 year averages, production is expected to rebound once the January thaw takes hold.
One analyst sees commodities as a "screaming buy" based on their very low valuation relative to the S&P 500 index--he is calling for an extended 10 yr bull run starting in 2018--the same analyst correctly said in 2008 that stocks were undervalued relative to commodities based on the same valuation metric (Bloomberg).
Copper has hit a fresh 3 1/2 high as output from the top Chinese producer has been halted for one week as the government seeks to fight pollution -the LME copper contract is up for the 9th straight day - the longest such run since 2004 (Bloomberg).
Thursday the Trump Administration proposed opening nearly all of the offshore to drilling - this may run into some resistance from governors of some of these states (WSJ).
The New Jersey Assembly is unlikely to vote on proposed nuclear subsidies in the legislature’s lame-duck session, meaning it will not be signed into law before Gov.-elect Phil Murphy(D) is sworn in later this month. (Utility Dive)