The Guest Blog

Schork Oil Outlook: Cheap NatGas May Get Even Cheaper


Last Friday, we poked fun at a media establishment that continues to feign shock every week the jobless claims fail to improve. A week ago, headline writers were apparently stunned that claims spiked to 479K. In this vein, yesterday’s report from the Bureau of Labor Statistics (BLS) must have really knocked these guys for a loop. Not only did the most recent claims come in… wait for it… “unexpectedly” high at 484K, but last week’s report was revised up to 482K.

As such, current claims are now at the highest level since February. Worse still, the four-week average is now 473½K and is at the highest level since November!

It is now 58 weeks since the recession allegedly ended last summer, but in that time, weekly unemployment insurance claims are averaging 490K. During this recession (12/07 to 6/09) weekly claims were actually lower, 478K and claims in the 58th week of the “recovery” are 153% greater than the average, 320K, of the 58 weeks preceding this recession.

Add to this last Friday’s monthly nonfarm payrolls report. While there were some threads of hope in the headlines, the overall picture is still a jobs market that is improving glacially… and that’s being optimistic.

Stephen Schork

For instance, 12 months since the end (?) of the recession, the BLS’ U-6 unemployment rate (which is a better gauge of unemployment) is averaging 16.8%. That is more than twice the average of the twelve month’s preceding the recession and 25% above the average when the Bush and Obama administrations tried to stimulate the economy with a lot of borrowed money.

Thus, that the moribund employment picture will weigh upon the energies as we move into the fall. For example, the last two EIA reports of weekly natural gas inventories painted a very bullish picture, yet last Thursday the spot Henry Hub futures contract on the Nymex crashed through the 200-day moving average, 4.736, and yesterday the contract failed for a third straight session to test resistance at the 100-day average, 4.386.

Therefore, it appears that the last two weekly employment reports have trumped the EIA reports. This is a reasonable assumption. Weather-related demand is strong today, however it will dissipate as we roll into the fall shoulder months.

The other two cost drivers for natural gas come from industrial and commercial use. Two out of five of the biggest gas markets for these sectors are Texas and New York. In both states the unemployment picture is relatively good, 8.2% each or 1.3 points below the national average. On the other hand, the same cannot be said for the three other largest markets, California with a rate of 12.3%, Illinois at 10.4% and Florida at 11.4%.

Bottom line, gas is cheap today, but given the jobs picture it can be even cheaper tomorrow.


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.