Record Natural Gas Storage Withdrawal Ignites Price Action

The price action experienced in natural gas markets since November has been substantial. The most extreme example of this time of volatility is the the February futures contract which we have seen trade as high as $3.31 and as low as $2.56 over the past three months, a $.75/MMbtu spread or 23%.

Since then, a combination of sustained cold weather and lackluster production due to wellhead freeze-offs has pushed prices back up to pre-december levels. Prior to that move, prices were moving in the opposite direction of fundamentals, but finally gave way when the early January cold snap resulted in the highest natural gas storage withdrawal on record and the highest one day of natural gas demand on record. These are bullish fundamentals, yet, fear remains that production will rebound to record-setting levels alleviating short term supply shortages.

Power markets across PJM, MISO, NE-ISO, NYISO, and ERCOT have all rebounded off early January lows, with the majority of upward pressure reserved to the front of the curve.

Energy futures remain in check as Oil has come on strong in 2018. Many of the major oil forecasters have raised their 2018 projections to remain above $60 dollars a barrel, highlighted by hitting the highest price level since 2014 last week. Thus, an increase in production is likely to capture future margin for producers and therefore, will lead to an increase in associated natural gas drilling (natural gas extracted as a result of drilling for crude oil). This expected increase in natural gas supply growth has tempered any long term bullish speculation.


The EnergyWire

Friday CFTC data showed that money managers raised their net length held in crude oil in London and NY combined to a record (Reuters)--WTI net length rose by 44,527 contracts in the period ended 1/16 -- net length in WTI rose to 482,298 contracts.​ (Liquidity Energy)

The US experienced record setting demand on January 1st, with total demand reaching 150.7 Bcf/d. The EIA attributed the record demand, in large part, to increases in exports, increased reliance on gas for power generation, and industrial demand. Res/Com demand, while high, did not surpass previous records. (Direct Energy)

Last Monday, the FERC unanimously denied the Department of Energy’s controversial Proposed Rule on Grid Reliability and Resilience Pricing (NOPR). Without financial support, early retirement of coal and nuclear power plants could be down the line, thus likely raising demand for natural gas. However, since Monday’s news, 2019-2024 natural gas calendar strips have had minimal movement, which might be explained by an expectation of enough domestic natural gas supply to support further demand increases. (Direct Energy)

Highlights from the EIA’s January 2018 Short Term Outlook

Benchmark North Sea Brent crude oil spot prices averaged $64 per barrel (b) in December, an almost $2/b increase from the November average and the highest monthly average since November 2014.

Brent crude oil prices averaged $54/b in 2017 and are forecast to average $60/b in 2018 and $61/b in 2019. West Texas Intermediate (WTI) crude oil spot prices are forecast to average $4/b less than Brent prices in both 2018 and 2019. EIA’s forecast for the average WTI price for December 2018 of $58/b should be considered in the context of NYMEX contract values for December 2018 delivery. NYMEX contract values traded during the five-day period ending January 4 suggest that a range of $40/b to $85/b encompasses the market expectation for WTI prices in December 2018 at the 95% confidence level.

Dry natural gas production is forecast to average 80.4 billion cubic feet per day (Bcf/d) in 2018, a 6.9 Bcf/d increase from the 2017 level, which would be the highest year-over-year increase on record. Forecast dry natural gas production increases by an average of 2.6 Bcf/d in 2019

EIA expects the share of U.S. total utility-scale electricity generation from natural gas to rise from 32% in 2017 to 33% in 2018 and to 34% in 2019, as a result of low natural gas prices. Coal's forecast generation share falls from 30% in 2017 to slightly lower than 30% in 2018 and 28% in 2019. The nuclear share of generation was 20% in 2017 and is forecast to average 20% in 2018 and 19% in 2019. Nonhydropower renewables provided almost 10% of electricity generation in 2017, and its 2018 share is expected be similar before increasing to almost 11% in 2019. The generation share of hydropower was more than 7% in 2017 and is forecast to be slightly lower than 7% in both 2018 and 2019


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