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All About Energy

The Force Awakens with Natural Gas Today

JB Sowyrda Dec 17, 2015 12:02:00 PM
JB Sowyrda
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Even though Jan 16’ is trading in the $1.80 range, buyers need to pay close attention to outer months, winter 16'-17' to be specific if you have a Q3/4 start date.  The latter half of the year is seeing an uptick of about $0.06-$0.07 and is creating a near $1.00 delta between promt month (Jan 16') and promt plus 12 months out (Jan-Feb 17').  

The near-term impact isn't significant right now as prices remain subdued, but a combination of economic events and winter finally appearing will likely help rally the bulls towards the latter part of 16'.  With that being said, the spikes expected towards the tail end of 16' could be short lived as E&Ps reverse course as economics improve.    

As we have seen, the excess gas in storage among other things have driven prices down to levels not seen in 10+ years; just the same, any shortage will likely drive the prices back up.  In my opinion, the combination of winter finally showing up this coming Jan. and Feb., the lowest drilling activity in decades, and oil and gas companies being out of cash to invest, the low prices we're seeing now will ultimately result in lower storage numbers heading into next winter, causing a spike in prices.  Oil and Gas companies will then increase their activity and drive prices down again in 2017.

CME Group HH NG Futures Pricing

The Dark Side of the Force is Strong with Natural Gas Today

Natural gas is on the rise this morning; Jan '16 NYMEX  up $0.01 and Feb'16 up $0.04 amidst a weaker draw (net 34 Bcf decline) on storage this week as compared to the same period last year.  Per the EIA, stocks were 541 Bcf higher than last year at this time and 322 Bcf above the five-year average of 3,524 Bcf. At 3,846 Bcf, total working gas is above the five-year historical range.

Working gas in underground storage as of Dec 11 2015

Market Commentary from Curtis Funderburk of
Beacon Risk Solutions, LLC

Daily Continuation Screenshot from ProphetX

These are truly unusual times for the energy industry as investors and traders don’t want to own anything with energy in its name. 

This Spring is likely to be extremely harsh for the oil and gas industry as the bank and lender re-determinations that went reasonably well under the circumstances this past Fall will be brutal with the round of same coming by April or so. We would estimate that there could be as many as one in six to seven independent shale operators file for Chapter 11 Reorganization in the first half of 2016. 

Crude oil was trading around $90 the last time that natural gas was under $2.00 in April 2012.  This “double whammy” of $2.00 or below gas and $35ish crude prices combined with absurdly high debt levels on their balance sheets will soon wreak even more havoc on producers’ ability to drill new wells.

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Topics: Natural Gas Storage, Natural Gas