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Energy News and Market Information for the week of 12/07/2015


Market News

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Data Highlights

 

WTI crude oil futures

12/10/2015: $36.76/bbl
down$4.32 from week earlier
down$24.18 from year earlier

Natural gas futures

12/10/2015: $2.015/mmBtu
down$0.166 from week earlier
down$1.691 from year earlier

Natural gas inventories

12/4/2015: 3,880 Bcf
down76 Bcf from week earlier
up514 Bcf from year earlier

Crude oil inventories

12/4/2015: 485.9 mmbbl
down3.6 mmbbl from week earlier
up105.1 mmbbl from year earlier

Weekly coal production

12/5/2015: 16.101 million tons
up1.150 million tons from week earlier
down4.211 million tons from year earlier

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Author: Jason Scarbrough

Natural Gas

Heating demand virtual non-existent..

 
 
Natty bulls have gotten reamed this over the past several weeks in the face of warmer than normal weather across the entire US east of the Mississippi.  The US industrial complex is in recession so without weather creating heating demand – there isn’t any for the most part (at least not enough to materially affect our storage surplus).



It would seem that the market has given up on any kind of winter and starting to give up on 2016 as a whole – the front end of the futures have plummeted.  The forward curve contango spread has ballooned to over $1.30 from today to December 2020. And the March/April contango spread has grown to 8 cents.  

Even today with a very large withdrawal that was a good bit above expectations – bulls can’t maintain a bid and the market is down to the major psychological level of $2.00 as I wright this.  
 

 
And it doesn’t look good going forward either.  Crude oil continues to sell off as Saudi supply is set to increase and Iranian oil is set to hit the market in the second quarter of 2016.  The Fed is expected to raise interest rates for the first time since 2006 – signaling a “strong economy”.  This will undoubtedly strengthen the dollar – which will also drive commodity prices lower – all of this setting the table for 20$ oil.   While great for the pump – sympathy will be an anchor for natural gas  prices.  Not to mention oil is heading lower in the face of WW III?
 
Maybe it will be a hot summer...

 

LNG



 
 
Cheniere is set to begin exporting LNG early 2016  and have long term deals with Europe and Japan (at higher prices) but with global commodity prices crashing – their stock price could tell the story behind the market’s confidence in their near term profitability (this was supposed to be a major disrupter in our supply here in the US).  . 


 

Technicals

Bearish



The recent steep downward trend tried to flatten earlier this week, but today the bears keep it going – (it would seem we are entering into a narrow consolidation range 2.00-2.20).  it looks like our call for retesting the 1.944 low may come before we expected.  Technical notes below
  • MACD is turning more bearish
  • The 100 DMA and the 200 DMA continue to diverge
  • The down trend continues to be resistance – even when it was broken last Friday – Monday’s trade was a resounding .. I don’t think so 
  • While open interest is shrinking as the market sells off – there is still a big risk of a colossal short squeeze if any sustained weather hits the major HDD regions.  


Storage

Natural Gas Inventories currently stand at 3,880 BCF 


 
Yesterday, the EIA reported a net gas storage withdrawal of 76 BCF for the week ending December 4, 2015. This week’s report was greater than the market’s expectation which was centered around a withdrawal of 68 BCF. It compares bullish against 51 BCF withdrawn in this same week last year and against the five year average withdrawal for this week of 65 BCF. 

Although this week’s report may appear to send a bullish signal, overall market sentiment remains overwhelmingly bearish. A late and muted start to winter weather appears to be fulfilling El Nino expectations and is combining with record gas storage inventories to provide ample supply to the market. That is clearly reflected in gas futures market pricing.  
 


Natural gas inventories currently stand at another weekly all-time record high of 3,880 BCF which is 514 BCF greater than from this same week last year and 236 BCF greater than the five year average.
 

Market Update
It’s hot


Bullish second half of winter?
Some models are predicting an increase in energy transfer from the troposphere to the stratosphere starting the third week of December. This will likely lead to perturbation of the polar vortex is perturbed, the higher our confidence in a cold second half of the winter.

Nah: 
Longer-term high latitude boundary conditions favor a negative bias to the AO (Arctic Oscillation) including extensive Eurasian snow cover and low sea ice extent in the Barents- Kara seas.  The key will be how strong the energy transfer from the troposphere to the stratosphere is in late December and how much the polar vortex is perturbed.  If the energy transfer does not significantly weaken the polar vortex, the AO will likely remain mostly positive (very far north – like northern Canada) and the mild temps will dominate the mid-latitudes.  
-    Credit: Atmospheric And Environmental Research(AER)



 
 

El Nino
 




 Top emergency officials in California discussed the statewide impacts Wednesday of a strong El Nino, focusing on what the public can do to better prepare for the expected storms.

“We want to empower the public with as much information as possible, and we want to say that it’s very important that the citizens of California take this seriously,” said Mark Ghilarducci, director of the California Governor’s Office of Emergency Services.

There is now a 95-percent chance that a strong El Nino will hit California this winter, according to Todd Morris, regional coordinator for weather services at the National Weather Service. 

“Certainly, we are looking at the potential for one of the strongest El Ninos in recorded history,” Morris said.

Meteorologists tend to base their assumption on warming water in the Pacific Ocean, specifically in an area called the Nino 3.4 Region, near the equator.

The region has now experienced weekly and monthly temperature averages that have exceeded the highs of the strongest El Nino in history, Morris said.