Energy Insights: May 9, 2012
Natural Gas closed today at a two month high on expectations of slower production and the prospect of more demand for the fuel by natural gas fired generation. Tomorrow, 5/10/2012, all eyes will be on the EIA’s storage report release at 9:30am CST. Expectations on the injection number for the week ending on 5/4/2012 range from 25Bcf to 55Bcf. This range is well below the average. Last year for this week, gas storage rose by 71 billion cubic feet, while the five-year average rise in the week is 84 billion cubic feet.
Natural Gas
During the past couple of weeks there has been a change in market sentiment. What started as a technical short covering rally has continued as market fundamentals are suggesting that the natural gas market is tightening. Therefore, we have changed our outlook from neutral with a bearish bias to neutral with a bullish bias.
Below you will find Bearish and Bullish indicators with the latest available data:
Bullish factors:
• EIA published its Short-Term Energy Outlook (STEO) which reported that natural gas consumption will average 70.2Bcf/d in 2012, an increase of 3.4Bcf/d (5.1%) from 2011, an upward revision of 0.6BCf/d from last month.
• Projected consumption of natural gas in the electric power sectors grew by almost 21% in 2012. This is driven by coal to gas switching in some regions.
• Injections into storage have been underperforming compared to historical levels.
• Department of Energy Data shows an increase of approximately 5Bcf/d of natural gas demand from coal to gas switching.
• U.S. gas rig count was 606 on 5/4/2012. This is down 35% from its peak in OCT-2011.
• EIA weekly domestic dry gas production is down 0.14% W/W and 5.19Y/Y.
• Large noncommercial traders cut their net short position in natural-gas futures on the New York Mercantile Exchange.
• Technical indicators show that the JUN-2012 contract is trading above the 50-day moving average ($2.35/MMBtu).
• After EIA’s STEO release, the JUN-2012 contract broke the previous 6 days tight consolidation trading range.
Bearish Factors:
• Current Storage level 2.576 Tcf. 48.4% above last year and 49.9% above the 5-year average.
• OCT-2012 estimate is 4.0Tcf.
• Technical indicators show that the JUN-2012 contract is oversold and is close to the following resistance levels: R1-$2.50/MMBtu, R2-$2.60/MMBtu.
• Short term weather outlook is not conducive for significant demand of natural gas.
Traders used to sell into strength, so rallies had been limited; however, such strategy has now changed to buy the dips instead.
ERCOT Heat Rates
Heat Rates were weaker last week.
Contact your Acclaim representative - to discuss how to manage your current exposures.
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