Bulls hanging by a thread…
Energy prices were weak last week. Shipping disruptions caused a pop in the liquids on Monday, but a quick sell-off and mixed macro indicators led to prices falling every day for the rest of the week.
Natural gas followed to hit its lowest close since early December. As far as this week goes all eyes will be on Friday’s nonfarm payrolls number which could make or break the market for February.
's call for Henry Hub Natural Gas: NEUTRAL.
The EIA’s release on Friday of its monthly figures killed a nascent recovery in the Nymex Henry Hub pit. According to the EIA-914 Survey, gas withdrawals (gross) in the Lower 48 U.S. rose by 0.2% in November to 63.13 Bcf/d. Production in Louisiana rose for an 11th straight month, up 5.1% as of November on increased drilling (thank you Nymex rally) in the Haynesville shale. Conversely, offshore production in the GoM fell by 5% on shut-in related to Tropical Storm Ida.
Furthermore, according to the EIA’s Natural Gas Monthly (NGM), total U.S. (incl. Alaska) gross withdrawals of gas from wells in November rose by 1% to 72.71 Bcf/d.
As a result of the jump in production, plus very mild weather and a suspect economic recovery, more gas went into storage (underground and LNG tankage) than came out, 1.05 Bcf/d, for only the second November on record (a/o 1973).
As far as the Nymex goes, last week the natural gas contract for February delivery expired at 5.274, well below our (5.516, 6.138) confidence interval and the Short Term Energy Outlook’s (STEO) 5.410 forecast settle. Crossing our lower bound was a very bearish signal, and as such, this week’s confidence interval for the March contract has been revised significantly lower.
's March Confidence Interval now comes to (4.560, 5.773) from (5.002, 6.610) in last week’s report. That’s an 8.84% drop on the lower bound, but the bears could manage to cross it, keep in mind prices were below 4.5000 as recently as December.
Regardless, we expect the bulls to put up significant support on the way, and the STEO’s forecast settle for March comes to 5.32. Further out, the average CI for 2010 has been revised from (4.658, 7.668) last week to (4.209, 7.079) as of today.
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.