The Guest Blog

Schork Oil Outlook: Eyeing That Magic Number

Stephen Schork, Editor, The Schork Report

ENERGY PRICES WERE STRONG ON MONDAY… crude oil prices in London and New York moved further towards the magical $75 print, while oversold conditions in the Henry Hub natural gas market ignited a peculiar rally…not unlike what we saw back on March 19th.

The proliferation of non-conventional drilling (shale, coalbed methane and tight gas) and the reappearance of LNG has been more than enough to offset shut-in conventional output.

As a result, gas is still getting into the ground.

On that last point, imports of LNG have been on the rise. While pipeline imports from Canada over the three months ended May are down 10.7% year-on-year and 7½% to the 2003-2007 timestep – a statistic that dovetails well with the dearth of Canadian drilling rigs this spring and summer – waterborne imports of gas are up 56% compared with a year ago and are on par with the prior five-year average (exclusive of the 2007 outlier). The EIA now forecasts working natural gas stocks to reach 3.670 Tcf by the end of this refill season (late October/ early November). That is 105 Bcf or 3% above the 2007 record, 3.565 Tcf. To get there from here, injections need only average 40 Bcf per week or 75% of the five-year average.

Needless to say, odds are short we will get there.

However, as we first noted in the June 20th issue of apropos industrial demand, there were green, actually grey, shoots on the horizon. According to data provided by the American Iron and Steel Institute (AISI), weekly U.S. steel production has been trending higher since May. As of the week ended August 03rd, production topped 1.26 million tons for this first time this year. Over the last three months output has been growing on average by more than 20,000 tons a week.

That is encouraging, but it is also a stark reminder of how far we still have to go.

The recent trend notwithstanding, steel production this year is a little more than half of where it was during the 2002 recession, i.e. 95.7% in April 2002 as opposed to 52.3% in April 2009. What’s more, spot NYMEX natural gas averaged $2.964 in the first seven months of 2002 as opposed to $4.046 through July of this year.

Demand still has a ways to go.


Stephen Schork is the Editor of, and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.