Investing.com – The bulls have set prices between 7 and double digits this winter as alarmingly low storage and low fuel production contrasted with chilling expectations.
However, the US Energy Information Administration expects Henry Hub’s spot contract on the New York Mercantile Exchange between December and January to be just under $ 6 per millibter thermal cubic, or million metric British thermal units. From here, gas prices are expected to drop rapidly to around $ 3.50 by May 2022.
Cause? The US Primary Energy Agency believes that the country’s natural gas production will rise after January and that exports of LNG, or liquefied natural gas, will slow despite expected strong demand for the supplied version of the gas.
The EIA’s forecasts are unlikely to match the fervor of gas bulls who think fuel is on the cusp of a structural long-term rally, as is crude oil.
In fact, over the past couple of weeks, the intensity of the gas rally has decreased.
The Henry Hub spot contract fell 2.8% in the just-ended week, continuing its fall of nearly 1% in the previous week.
The momentum that drove the gas to the $ 6 average in the early days of October seems to have faded. For example, in the week ending September 24, the Henry Hub spot contract jumped 9.3%.
Gas prices continued to rise 114% over last year. But we now have a more volatile market: small intraday fluctuations in the $ 5.50-5.70 range as favorable weather, larger weekly injections into US storage facilities, and global gas diplomacy led by Russian leader Vladimir Putin are the antidote to the previous rally.
Friday’s low was actually $ 5.40, although it was still above $ 5.17 on Tuesday, which still marked the bottom of October.
What’s surprising about Friday’s downturn is that it came against the backdrop of a weekly EIA report the day before, which was clearly in favor of the bulls. Analysts at several energy agencies, consulting agencies and shopping malls predicted an average storage contamination of 94 billion cubic meters. Feet, or billion cubic feet. EIA reported growth of only 81 billion cubic meters. Feet, which is almost 14% below forecast.
The Henry Hub spot contract soared from an intraday low of $ 5.60 to $ 5.96, as indicated in the EIA custody report, which was the closest to a return on the valuable $ 6. However, just 24 hours later, it was down more than 50 cents on the day – a serious fall even with extreme gas volatility in recent times.
Earlier in the STEO EIA – a short-term energy forecast released on October 15, the day before the storage upgrade – it said that fluctuations will continue even if heating demand exceeds expectations in winter and stocks become even more critically short.
“We expect Henry Hub’s spot price in Q4 2021 to average $ 5.80 / MTU, which is $ 1.80 / MTU higher than we predicted in the September STEO report.” said in a message from the EIA.
But instead of $ 6 or more, he expected the spot price to see “an average monthly peak of $ 5.90 per million BTUs in January.”
In addition, the EIA said in its latest STEO that it expects the spot price “broadly to decline through 2022, averaging $ 4.01 per million BTU per year amid rising US natural gas production and slowing export growth. LNG “.
It was predicted that production itself would grow to an average of 94 billion cubic meters. Feet per day in winter and an average of 96.4 billion cubic meters. Feet per day in 2022.
The EIA said that the catalyst for its rate was the price of natural gas and crude oil, “which we expect to remain at levels that will provide enough drilling to support production growth.”
This line basically supports the adage in commodity markets that “higher prices are the cure for higher prices.” The logic is that at some point there is a collapse in demand as impoverished consumers use the diet or supply floods the market as producers try to benefit even more from mass production of the product.
The EIA rationale, however, challenges most gas bulls, who think the United States will have little or no significant production increase in the coming winter or anytime soon in 2022 due to voluntary over-drilling restrictions imposed by most companies in Russia. now there are shale spots.
However, some analysts deviate from the EIA’s view, predicting that in the near future, such warm weather – unlikely to be typical mid-to-late October conditions – could increase pressure on prices, despite a decline in gas / LNG supplies to Europe.
“Our early forecast for injection is within 90 bcm. Ft in the next report will keep the trend of more than normal storage capacity, ”said Dan Myers of Gelber & Associates in Houston, one of the less positive consulting firms. on sale.
The current trend in supply and demand will “contain price increases as long as the warmer than usual October weather remains,” Myers added.
Weather forecasting services seem to agree that significant cold weather will come in at least a month.
“We continue to look to late October and early November to see more impressive cold shots in the US, but where nighttime data failed to show a downward trend,” NatGasWeather said in a forecast published by naturalgasintel.com.
According to naturalgasintel.com, the forecaster noted that the European long-range model favored a warmer-than-normal model compared to the lower 48 through mid-November.
Bespoke Weather Services offered the portal a similar rating. The firm said the overnight patterns “just chilled” and the sub-normal demand structure remains broadly stable. The data found more volatility in the last third of the month, allowing cooler troughs to move across the Midwest and East.
There is no “real source of cold air”, Bespoke said, as the Pacific side of the scheme remains “very hostile” to any cold air delivery to the United States. However, it was a “notable step change” from a couple of days ago.
“We see this as a window of volatility,” Bespoke said. The forecaster continues to favor warmer weather to win in early November, “although we will continue to monitor the lock as it poses risks to the warm view if it continues to be underestimated by all model guidance.”
Of course, forecasters, analysts and the EIA could misinterpret the coming cold snap and the situation with gas demand / reserves. Over time, we will know what the pre-winter game will be like.
Overview of the oil market and prices
Oil bulls won for eight straight weeks as Brent hit $ 85 a barrel, approaching Wall Street’s $ 90 price tag, boosted by strong US retail sales and a rebound in stock market risk appetite despite explosive inflation.
News that China has cut crude oil import quotas for independent refiners and US inventory data since Thursday, indicating a third weekly rise in crude oil inventories, have been pushed into the background.
The spotlight was the White House’s announcement on Friday that it will lift travel restrictions against Covid-19 for fully vaccinated foreign nationals effective November 8, which should boost demand for jet fuel.
Also in the ears of the oil bulls was the assessment of the International Energy Agency on Thursday, according to which, due to the energy crisis, the world market will not have enough 500,000 barrels per day – according to some estimates, up to 700,000 barrels per day.
“It will take three events to disrupt this rally in oil prices: OPEC + will unexpectedly increase production, warm weather will hit the northern hemisphere, and if the Biden administration leverages strategic oil reserves,” said Ed Moya, an analyst at OANDA’s online trading platform.
The benchmark US oil price rose 97 cents, or 1.2%, to $ 82.28 a barrel. Earlier in the session, the price peaked at $ 82.48, the highest since 2014. For the week, the price of WTI rose by 3.7%, showing an eight-fold weekly gain, as a result of which the US crude oil index rose 32%. WTI grew by almost 70% over the year.
Oil, traded in London, the world’s benchmark for oil, climbed 68 cents, or 1%, to $ 84.86 after a three-year high of $ 85.09. Both Goldman Sachs (NYSE 🙂 and Morgan Stanley demanded $ 90 Brent by the end of the year.
Brent crude rose 3% on the week, the sixth consecutive week of gains, bringing the cumulative gain to nearly 17%. Over the year, the price of Brent crude oil rose by 64%.
The latest rise in oil prices also came after US Commerce data for September released Friday showed nearly 14% year-on-year growth and a steady 0.7% monthly rise since August.
Energy Markets Ahead
Monday 18 October
Cushing’s Crude Oil Reserve Assessment (Private)
Tuesday 19 October
weekly report on oil reserves.
Wednesday 20 October
EIA Weekly Report on
EIA Weekly Report on
EIA Weekly Report on
Thursday October 21st
EIA Weekly Report on
Friday, October 22
Baker Hughes’ Weekly Survey of
Review of the gold market and prices
It seems that these days the golden bull is doomed to soon celebrate.
After a brief euphoria to reclaim the $ 1,800 perch, long-time traders in the yellow metal were pushed back to the $ 1,700 average on Friday, as strong U.S. retail sales in September sparked a new surge in speculation. that the Federal Reserve may be forced to raise rates faster than anticipated.
The most active US gold futures contract ended on the Comex in New York at $ 1,768.30 an ounce, down $ 29.60, or 1.7%. The session low itself was $ 1,765.10. The only consolation was the 0.6% weekly gain.
Gold hit nearly $ 1802 on Thursday, surpassing the $ 1800 mark for the first time since September 15, as it appears to finally live up to its inflation hedge and haven label just days after oil prices hit seven years. maximum. above $ 80 per barrel.
But any illusion that the yellow metal would extend its two-day rally to reach the $ 1,900 mark and – ultimately – the August 2020 record highs in excess of $ 2,000 – seemed already paid for.
“Gold failed to hold on to the $ 1,800 level after a better than expected retail sales report and a strong round of earnings boosted US Treasury yields, dampening the attractiveness of interest-free assets,” said Ed Moy, an online trading analyst. … OANDA platform.
While gold is ripe for profit-taking after rising to the $ 1,800 level, “the downside could continue if Wall Street continues to pump stocks,” Moya said.
Retail sales growth in September boosted market growth, which was already its best in seven months in the previous session.
“Gold bulls still need to be patient,” Moya added. “Gold appears to be poised to consolidate here, but a new bullish trend is just around the corner when the global economic recovery is right and the dollar loses its dominance.”
Disclaimer: Barani Krishnan has nothing to do with the goods and securities that he writes about.