Outlook Today

The natural gas market view and bias is cautiously bullish, but watchful of how price activity plays out over the next several trading sessions from today’s expected bearish gas storage report and Friday’s monthly jobs report.  The market appears to be slowly moving into a mild uptrend and will remain in that pattern as long as the weather moves toward more normal conditions.

WTI crude oil is still trading above the key technical support level of the mid- $94’s/bbl and along with the changing fundamentals and geopolitics, the market is moving its view and bias back to cautiously bullish.  The cloud of uncertainty got slightly smaller in Europe, but support is now coming from the ongoing geopolitical risk in the Middle East.

Earlier risk asset prices were mixed, as shown on the chart below.

Natural Gas Commentary

January natural gas futures prices started its run in the lead position today on an upswing, with weather support and revised outlooks for this week’s storage report helping to build support back under the market following sharp losses for the expired December contract and the fresh front-month ahead of its first day in the lead. Spanning $3.525 to $3.633/MMBtu through the session, the contract settled up $.108 at $3.633/MMBtu, gaining momentum as traders look to colder winter weather, stronger demand and expectations of an upcoming string of pulls from natural gas inventories to drive stocks down from their current historically high levels. Technical support for January natural gas is seen at $3.50, $3.25, $3.00 and $2.75, while resistance is marked near $3.75, $4.00, $4.25, $4.50 and $4.75/MMBtu.

You will note the profound uptick in the near month gas futures price in the chart below as January took the near month position today.

Short-covering ahead of the arrival of colder air to key heat-consuming regions bolstered the market. As temperatures cool, the market expects stronger demand will begin to draw stocks down after a 9-Bcf injection reported in the week to Nov. 18 drove working gas inventories to a record-high 3,852 Bcf. But before the onset of steady storage withdrawals, the market anticipates another smallish build in stocks for the week to Nov. 25, as mild weather is expected to have combined with the Thanksgiving holiday to deflate demand.

While early forecasts called for a storage build of about 10 Bcf when the EIA releases its data at 10:30 a.m. ET on Dec. 1, revisions are taking that number lower as traders assess the likely impact of some chilly weather on storage building. While forecasts run widely from modest draws to a build of up to 20 Bcf, most outlooks now suggest a build of about 8 Bcf, which will compare bearishly to a 29-Bcf five-year-average withdrawal and a 21-Bcf pull reported in the corresponding week last year.

Day-ahead, spot markets were being supported by colder weather as higher demand was expected on regional power grids Nov. 30. Deals at the benchmark Henry Hub in Louisiana were up about $.30 on average in deals indexed near $3.40, while action at Transco Zone 6 NY in the Northeast lifted about $.42 into the $3.70s/MMBtu.

Natural Gas and Crude Oil Outlook Today

The current natural gas market is looking for a reason to move higher as the last trading for December 2011 occurs today.  The natural gas market view and bias is neutral, but watchful of how price activity plays out over the next several trading sessions.  Last week’s short covering rally was largely motivated by a changing (cooler) weather outlook.

WTI crude oil is still trading above the key technical support level of the mid- $94’s/bbl and along with the changing fundamentals and geopolitics, the market is moving its view and bias back to cautiously bullish.  The cloud of uncertainty got slightly smaller over the weekend in Europe, but we will have to watch Europe closely as the sentiment could change on one or more negative news snippets at any time.  WTI and Brent crude oil prices are once again back to being in sync with the direction of the U.S. dollar and euro, but are also being driven by the ongoing geopolitical situations in the Middle East.

Natural Gas Commentary

December natural gas futures settled the Monday, Nov. 21, trading session with an $.083 gain at $3.399/MMBtu, supported in bargain hunting and modest short-covering as the contract slipped to post a $3.285/MMBtu session low, a level not seen since October 2010, ahead of options expiration Wednesday and the contract’s expiration the following Monday, Nov. 28.  Technical support for December natural gas is seen at $3.20, $3.00 and $2.75, while resistance is marked near $3.50, $3.75, $4.00, $4.25, $4.50 and $4.75/MMBtu.

The modest weather changes signaling some possible significant improvement in demand added support to the market, while traders are looking ahead to another expected build in natural gas inventories above the already record-high 3,850 Bcf left after the previous week’s 19-Bcf injection.  Early projections for the storage report due out at noon ET Nov. 23, a day earlier than usual due to the Thanksgiving holiday, and covering the week to Nov. 18, range from an injection of 19 Bcf to a build of 28 Bcf, beating the five-year average and year-ago draw, both of which are 7 Bcf.

Trading volumes are expected to thin into the Thanksgiving holiday weekend, though the risk of volatility is higher given the expiration of options and the contract in the next few days.

Natural Gas and Crude Oil Outlook Today

The natural gas market is still bearish, but less convinced that there is a significant amount of downside in the price of natural gas in the short term.  Current market action shows a downside bias for price.  This week’s oil, natural gas, a rig count reports will be on Wednesday, followed by expiration of the gas futures contract for December on Monday the 28^th.

WTI crude oil for the new near month of January is still trading above another key technical support level of the mid- $94’s/bbl and along with the changing fundamentals, the market is keeping its view and bias at cautiously bullish as the cloud of uncertainty in Europe remains.

Weekly EIA Gas Storage Report

The EIA’s report was bearish on the basis that the net injection was above the last year and the more normal five-year average for the same week.  However, it was at the lower end of the expectations and below the consensus projection for a build of about 26 Bcf.  The weather was not overly cold or hot over most of U.S. and the average weather did not seem to result in a significant amount of weather-related natural gas demand to have a solid impact on inventory injections.  The market participants initially bought the market, but prices did top out quickly.  The most significant point of the gas storage report is the fact that there is now a new all-time record level of natural gas in inventory with several more injections likely to come. In addition the surplus widened versus the more normal five-year average also.  Current inventory levels are now 224 Bcf above the five year average, shown below.

This week’s 19 Bcf net injection is above last year’s withdrawal of -1 Bcf and above the injection level for the five year average of 10 Bcf for the same week.  The injection level was above last year’s level by 20 Bcf for the same week in 2010.  Compared to the five-year average for the same week, the injection was above the five-year average for the same week by 190%.

Gas storage stocks built in the East and Producing regions, with a minor withdrawal in the West last week.  Even stocks in the East region are now above the five-year average level.  The gap has been narrowing for the past three months in the East, with the West and Producing regions also surplus versus the five-year average.

The Producing Region saw a net increase of 11 Bcf, while the East Region injected 9 Bcf. The West Coast withdrew by 1 Bcf.  The East Region is now also above the five-year average.  The Producing Region, with 1,246 Bcf of working gas in storage, remains above the five-year average and now above last year’s level for the same week.

The deficit in total stocks versus last year has switched to a surplus of 15 Bcf a positive 0.4% above last year.  All regions are now showing a surplus versus the five-year average.  Compared to the five-year average for the same week, the total stock level surplus widened to 224 Bcf and sits at plus 5.9% above the same week for the five year average.  The Consuming East region is now the only region still showing a deficit versus the five-year average.

The following chart shows the difference between current total natural gas inventories compared to last year and the five-year average.  The direction has changed over the last month or so versus last year and has broken the trend versus the more normal five-year average.  The directional change may be the pattern we see for the foreseeable future until heating-related demand finally begins to gain momentum.  As compared to last year, total inventories moved from a large deficit a few months ago to a surplus of 15 Bcf today.

Natural Gas Commentary

December natural gas futures prices were slightly higher after the release of U.S. Energy Information Administration (EIA) gas storage data Thursday, Nov. 17.   While rising to a $3.479/MMBtu high following the midmorning release of the data, the contract settled up $.066 at $3.410/MMBtu, supported by a significant miss in the forecasted build in stocks for the week to Nov. 11. Technical support for December natural gas is seen at $3.20, $3.00 and $2.75, while resistance is marked near $3.50, $3.75, $4.00, $4.25, $4.50 and $4.75/MMBtu.

The sustainability of any price advance remains in question as the market eyes a storage injection above both the year-ago and five-year averages that should take inventories to levels heretofore unseen. The EIA reported a 19-Bcf storage injection that while above both the 10-Bcf five-year average build and the 1-Bcf withdrawal reported in the same week in 2010, was well below consensus estimates coming into the day, formed near 29 Bcf and within the wider range of outlooks from 20 Bcf to 32 Bcf. The build still brought stocks to a fresh all-time record high at 3,850 Bcf, 14 Bcf above last year and 224 Bcf above the five-year average of 3,626 Bcf.

Despite the record high storage, traders sold into the market amid oversold conditions as the storage miss was enough to spark the waiting bulls into action. But upside momentum remains limited by the overwhelmingly healthy supply of natural gas in storage combined with outlooks for ongoing mild weather and additional storage builds through the end of November.

Additional gas price downside risk continues from weather that refuses to recognize the calendar as temperatures across most of the country are expected to remain above average, generating limited demand for either heating or cooling.

At day-ahead, spot markets, prices for next-day gas delivery to key hubs across the United States varied as regional demand support shifted by changes in weather drove gains in some regions and losses in others. At the benchmark Henry Hub, the Friday product moved in ranges near unchanged on the day amid a lack of substantial changes in demand, while futures moved off the downside of the prior session to trade higher on Thursday. Deals spread from the upper $3.00s to $3.10s with a bias to the downside. At Transco Zone 6 NY however, the market was sharply higher as some cooling was expected to lift demand on regional power rids. Deals at the hub spread from the $3.50s to low $3.60s advancing about $.11 on average on the day.

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Natural Gas Market

As has been the case for weeks, all of the natural gas price drivers remain bearish with market participants, especially the bottom pickers starting to come to grips with the current scenario. We are at that time of the year when natural gas prices normally makes a seasonal low ahead of the winter heating season. This year is not like the last 10 or 20 years of history in that this year (also last year) gas production has been ramping up and is much higher than just about any of the last 10 years. At the same time, the slow economic recovery in the U.S. is keeping industrial consumption relatively flat while the prolonged mild weather is making the “shoulder” season an even less significant event than it usually is. Supply is continuing to outstrip demand and after this week’s injection report is issued on Thursday, the industry will have most likely set another new all-time record high level of natural gas in inventory as it surpasses and breaks last year’s record high.

Eventually the market will make a seasonal bottom, but with injections projected for the next several weeks (and not early withdrawals), the price bottom could come a lot later than it normally occurs. The near month NYMEX natural gas contract is below the 2011 low of $3.446/MMBtu made on October 13th. The way the market is trading, we may reach the annual low gas price between now and when the gas storage report is released on Thursday.

Crude Oil and Natural Gas Market Outlook Today

The natural gas market is still bearish and is becoming more convinced that there is more downside in the price of natural gas. The current natural gas market has a downside bias. Looking at the fundamentals, it is still hard to be anything other than bearish.

WTI crude oil is firmly trading above another key technical resistance level of the mid- $94’s/bbl and along with the changing fundamentals, the oil market is keeping its view and bias at cautiously bullish even with the cloud of uncertainty increasing in Europe. The situation in the EU is still in turmoil but some progress could still before the week’s close. WTI and Brent could recoup back to the direction of the U.S. dollar and the Euro, but for the moment it has largely decoupled this link.

Crude Oil and Natural Gas Market Outlook Today

WTI crude oil  is still trading above another key technical resistance level of the mid- $94’s/bbl and along with the changing fundamentals, the market is keeping its view and bias at cautiously bullish even with the cloud of uncertainty increasing in Europe today. The situation in the EU is still in turmoil but some progress could come this week.

The natural gas market is still bearish and becoming more convinced that there is more downside in the price of natural gas. Current market actions are range bound with a downside bias. Looking at the fundamentals, it is still hard to be anything other than bearish.