The Guest Blog

Schork Oil Outlook: Questioning The New York Times

The New York Times questions shale… huh?

A recent article in The New York Times regarding growth prospects for North American shale gas was the talk of the town yesterday. The article in question, called into question, the prospects of shale gas development.

As far as we were concerned, the story was more or less a he-said… she-said, summation of dueling opinions within the EIA’s pecking order. In this vein, we gave the article short shrift.

Exxon’s $36 billion shale bet on XTO notwithstanding, the story seemed to pick up steam throughout yesterday's session.

Therefore, we thought it prudent to take a look at the term structure of the NYMEX Henry Hub complex.

In today’s issue of , we graphed the return on holding natural gas inventory, as measured by the 1st/13th month calendar spread (aka… spot month/red month) of Nymex Henry Hub natural gas futures.

Futures & Fuel

The disposition of supply/demand metrics for gas can be inferred from the trendline running through our scatter plot of the spread and EIA estimated storage (request today’s report).

When the scatter point lies below the trendline, as is the present case, it is reasonable to assume that the market is comfortable with the industry’s ability to supply future demand, i.e. market participants are unwilling to bid for spot molecules.

To this effect, the market seems hardly concerned with the ability to offset future demand.

More to the point, over a three-week span ended June 07th, natural gas producers had upped their short position of Nymex contracts by 45% to a record 74,544 contracts. Over that same timespan the Nymex Calendar 2012 strip averaged $5.016 and the 2013 strip averaged $5.329.

Bottom line, if the article in the Times had any import, why are producers so willing to sell gas over the next two years so “cheaply”?


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.