July 20, 2009

Natural Gas Storage at Record Levels for This Time of Year

At 9:30 AM today, natural gas is trading down four cents to $3.628 per mmbtu on NYMEX. The current market has risen from the $3.20 mmbtu levels that we saw a week ago, which may have been a significant trend reversal. There are some natural gas bears who have sound arguments that natural gas can dip below $3.00 per mmbtu: and then there are the bears who will argue for rapid recovery beyond $5.00 per mmbtu when the economy ignites. Our position is to avoid short term bets, and pay attention to long-term trend behaviors. We view today's future prices as historically low. If risk reduction is an important part of your energy strategy, this may be a good time to review the pros and cons of locking in your winter energy buy for this year and next.

Speculation Deja Vu
Speculators are certainly placing long bets on natural gas through the United States Natural Gas Fund. The popularity of this ETF has been overwhelming and is viewed by the IECA (Industrial Energy Consumers of America) as the poster child for the return to the excesses that led to the recent market meltdown. The IECA sent a letter to the SEC on July 13, 2009 with this important observation: "The futures market is very special and was created to serve the needs of buyers and sellers of physical product and enable them to manage risk. We must guard the futures market from influences that are not consistent with reflecting the fundamental of supply and demand of the physical product being traded."

In other words, stop letting hedge funds and investors use natural gas as a tool for speculation. We will keep our eyes on this debate, which may be the best indicator of the backbone of the reinvigorated Commodity Future Trading Commission. Our position has always been in support of the IECA. Natural gas is too important to serve as a vehicle that can be manipulated to drive profits for the speculators, especially when it results in increasing costs for retail and industrial energy consumers.

Why is this important? Last year, natural gas was driven through the roof by speculation; the front month price in the first week of July, 2008 reached $13.57 per mmbtu. We do not want to see history repeated.

Natural Gas Exploration Still Declining
US natural gas producers are still busy idling rigs- over 869 over the past 12 months, leaving us with 665 working rigs as of last week per Baker Hughes.

Natural Gas Storage Soaring to New Heights
Working gas in storage was 2,886 Bcf as of Friday, July 10, 2009, according to EIA estimates. This represents a net increase of 90 Bcf from the previous week. Stocks were 589 Bcf higher than last year at this time and 454 Bcf above the 5-year average of 2,432 Bcf. This represents a record storage level for this date.

Natural Gas Market Watch- Intraday Prices Snapshot
Here are the intraday prices on the NYMEX electronic market today (Monday) at about 9:35 AM for the next six months($ per mmbtu, intraday prices):
Aug. $3.628 -0.041
Sep. $3.773 -0.043
Oct. $3.993 -0.035
Nov. $4.643 -0.030
Dec. $5.303 -0.013
Jan. $5.591 -0.005

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

Crude Oil Watch
West Texas Cushing traded up $1.54 to $63.56 per bbl last Friday.
NYMEX Crude front month future is down $0.94 to $64.50 per bbl at 8:39 AM today.
 OPEC Basket Data

Electricity Watch- Bargain Prices Available
Last Thursday, the Day Ahead price for NYISO Zones A, B and C fell below $23.00 per MWH; last year they were hovering around $110.00 per MWH.
For more information view the Day Ahead Electric pricing data charts from the PMC database, updated every Monday.
 
Weather Trends- Summer Chill Ahead
Most of the US will be colder than usual next week, which will reduce natural gas demand for cooling.
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.