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Energy News and Market Information for the week of 10/05/2015


Market News

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Data Highlights

 

WTI crude oil futures

10/6/2015: $48.53/bbl
up$3.30 from week earlier
down$41.81 from year earlier

Natural gas futures

10/6/2015: $2.470/mmBtu
down$0.116 from week earlier
down$1.428 from year earlier

Retail gasoline price

10/5/2015: $2.318/gal
down$0.004 from week earlier
down$0.981 from year earlier

Crude oil inventories

10/2/2015: 461.0 mmbbl
up3.1 mmbbl from week earlier
up99.3 mmbbl from year earlier

Weekly coal production

9/26/2015: 17.509 million tons
down0.294 million tons from week earlier
down2.802 million tons from year earlier

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Author: Jason Scarbrough

Natural Gas

Bearish

In an effort not to be redundant to last week’s report – I will keep the fundamental brief.  Even though we are still bearish fundamentally -  this is based on gas in the ground/depressed global pricing/economic recession – there are still some things to be watching out for to turn the market back to the upside. 

As indicated in the last report, even though production is becoming more and more efficient and producers are focusing on the most efficient wells – “high grading” –  you can’t ignore the cratering rig counts in 2015.  As of the week ended Oct 2nd – the Baker Hughes oil rig count stood at a five year low of 614 rigs, down 62% from last year’s peak.  We think this could begin to catch up with production sometime in the early 3rd quarter 2016.  But not enough to significantly impact prices in the med term.  BUT if we have a cold winter in the lower 48 with high heating demand, this could materially impact pricing going into the second half of 2016.  But I don’t think so –note the forward curves – the market doesn’t see any sort of imbalance in supply/demand metrics.

Global commodity prices are likely to have an “oil anchor” around their collective necks in 2016.  
What you may have heard about North America for 2016: 
Here in North America – 2016 looks bleak for the WTI production.  2015 has seen over 70,000 energy sector job cuts and it is about to get worse.

This fall’s rederminations of credit facilities sets the oil patch up for a bloodbath.  There are a great deal of oil producers that are close to or at 100% of their credit line with no collateral to show for it.  Banks are likely to cut credit by 10 -15% - and as credit liquidity dries up – so does CAPEX = much lower North American Production.  

Why won’t this drive oil prices higher?  Iran/Saudi Arabia.  Barring WWIII (which isn’t out of the realm of possibility with this administration), the growing Sunni OPEC/Shia OPEC chasm will drive Iran and Saudi Arabia to spend 2016 flooding the market with oil continuously undercutting each other for market share. Argot – keeping crude oil prices down despite our lack of production – which we think will play a part in keeping most other economies and commodities down – namely natural gas. 
 
 

Technicals

Neutral



Natural gas is likely in oversold territory after testing and passing the YTD low of $2.44.  the market  quickly bounced off those levels back above the key $2.50 psychological mark intraday today.  We think that traders will likely take a break from the downward momentum to regroup and allow the market to get to a point to short once again.   The reaction to tomorrow’s storage report will let us know if we are indeed oversold – ie if the EIA reports a bullish number and the market doesn’t continue the momentum to the downside – that will confirm the market is indeed oversold.   The trickle to the upside over the last 4 sessions would be a result of unwinding short positions aver hitting that low – I don’t think there are any bulls in this market. 
 


Storage

Natural Gas Inventories currently stand at 3,538 BCF 
 

 
The EIA reported a net gas storage injection of 98 BCF for the week ending September 25, 2015. This week’s report was slightly below the market’s expectation which was centered around an injection of 101 BCF. It is bullish against 110 BCF injected in this same week last year and bearish against the five year average injection for this week of 94 BCF.
 
Natural gas inventories currently stand at 3,538 BCF which is 454 BCF greater than from this same week last year and 152 BCF greater than the five year average.
 
Tomorrow the market is expecting another large injection of 98 BCF as of this am.  The range is 87-111with the typical injection in the mid 80’s.