Weather through the first third of this month has been chilly, to say the utmost least. Odds are shaping up in favor of the weather bugs; but is this bullish for natural gas? That is to say, will the “… coldest winter of the decade…” as one prominent meteorologist recently put it, be enough to exorcise the extant surplus in heating Btus (natural gas and heating oil)?
Here at The Schork Report, we have our doubts.
For starters, the heating oil complex on the NYMEX has not budged… and, for good reason. High sulfur distillate stocks in the East (PADD I) are teeming. Per last Wednesday’s DOE report, supplies jumped 3.7% to 43.6 MMbbls.
As a result, the year-on-year surplus ballooned to 54% or 15.2 MMbbls. As such, the NYMEX forward curve has not moved since the summer. For instance, two months ago spot gallons were trading at 98.5 cents on the dollar to the next month out and at 88.8 cents to the red-month. Fast forward to last Friday, spot gallons were at 98.6 cents on the dollar to the second contract and at 88.4 cents to the red-month. Thus, the yield on the contango is just as steep today – at the start of the heating season – as it was at the height of summer.
In other words, this heating season’s early start not withstanding, the market is not pricing in a premium on winter material, i.e. the market is not pricing in concern regarding the availability of supply for this winter.
Stephen Schork is the Editor of, "The Schork Report"and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.