Monday, Jan. 3, 2009

Natural Gas Drops Due To Mercury's Rise in the Midwest
Natural gas traded briefly as high as $6.06 per mmbtu this morning but dipped below $6.00 in response to the forecast for warmer weather ahead in the Midwest. At 10:40 AM, the front month traded at $5.893 per mmbtu on NYMEX. It looks like the heat wave is a brief one since the National Weather Service forecast indicates an East Coast cold wave next week. More than likely, the competing weather fronts will balance each other out over the next ten days.

When the big news in the natural gas market is weather, one has to smile: it indicates that the market is returning to a more rational model for pricing. The very interesting crossover last week of crude vs. natural gas on a BTU basis has returned to a more normal ratio. Liquid fuels almost always trade at a premium to natural gas. When they don't, you know that there is a dynamic in the market that is not functioning correctly. Crude is climbing, helped by the division of Gaza by the Israeli army which has driven front month crude prices on NYMEX up $1.20 this morning to $47.54 per bbl.

Natural Gas Storage
Working gas in storage was 2,877 Bcf as of Friday, December 26, 2008, according  to EIA estimates. This represents a net decline of 143 Bcf from the previous  week. Stocks were 69 Bcf less than last year at this time and 56 Bcf above the  5-year average of 2,821 Bcf (EIA-WNGSR). We slipped below the 3 TCF mark which we will probably not see again until next December.

What is the significance of our storage level? It is safe to say that the US will consume about 20 TCF of natural gas a year. With 2,821 BCF in storage, we have 14.3% of our natural gas ready to flow which is a very safe level with three winter months ahead of us.

Natural Gas Production
One of our concerns is the potential that recession-induced industrial demand destruction will lead to supply destruction. This is becoming a reality. According to the Baker Hughes Drill Rig Report, there are 80 fewer natural gas rigs in the field last week (12/26/08) compared to the previous week; and 183 fewer rigs than last year at this time. We don't know the impact that this will have on first quarter prices in 2009, but it could have a long term impact during the fourth quarter of this year. It looks like the natural gas industry intends to keep natural gas above $5.00 per mmbtu and is willing to cut production to ensure that it remains above that price point.

Natural Gas Market Watch- Intraday Prices Snapshot
Here are the intraday prices on the NYMEX electronic market this morning (Monday) at about 10:45 AM for the next five months($ per mmbtu, intraday prices):
Feb. $5.893 -0.078
Mar. $5.902 -0.092
Apr. $5.948 -0.086
May. $6.010 -0.084
Jun. $6.102 -0.087

Natural Gas Futures:
PMC 30-Day, 90-Day, 12-month Natural Gas Futures Chart

Crude Oil Watch
The OPEC Basket Data Basket Data price was down to $39.95 per bbl last Friday, Jan. 2, 2009.
West Texas Cushing traded down $0.34 this morning to $46.00 per bbl at 9:05 AM.
NYMEX Crude front month future is down $0.99 per bbl this morning to $46.66 at 10:53 AM.

Electricity Watch
Northeastern electricity prices are stable. Review the historic trends for key electric markets in the Northeast with the Day Ahead Electric pricing data charts from the PMC database, updated every Monday.
 
Weather Trends
NOAA's forecast for next week indicates general warming through much of the Midwest with cooling along the East Coast.

 
NOAA Forecast for Next Week
8-14 Day forecast
NOAA Forecast- 30-Days

Written and Researched by Martin Linskey; Energy Charts developed by Charles Myers.

Disclaimer: This information is provided for the use of our customers and potential customers. Power Management Company assumes no responsibility or liability for the accuracy or completeness of pricing or information in this document. Historical data was obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. It is not intended to provide advice or recommendation. Views are subject to change without notice.