Natural Gas Continues To Climb

Natural gas continues to climb this morning trading at 3.921 adding over 6 cents as cold weather is forecast throughout the US. As the winter comes to a close, one last winter blast is expected as the North East corridor is beginning to see snowfall. A major snow storm is expected in Minnesota and in the Baltimore Washington corridor. A Winter Storm Warning is in effect from 2 am to 6 PM EDT Monday. The National Weather Service in Baltimore MD/Washington has issued a Winter Storm Warning for snow and sleet-which is in effect from 2 am to 6 PM EDT Monday. This late season cold spell is expected to see residential energy demand skyrocket and reduce inventory levels while supporting price increases

Natural gas extended its winning streak for the third straight session on Friday, advancing to their highest level in 4-months on forecasts that cold temperatures will persist across most of the US in the coming weeks.

The number of natural gas drilling rigs in the US rose by 24 in the latest week to 431 while oil-rig counts were unchanged at 1,341, according to oil field services company Baker Hughes Inc. Since energy is all about supply and demand, you can see we have a world of demand at our fingertips. From a supply side, prices in the U.S. are as low as they are because we have too much production. Even with the growth of natural gas in electricity generation, we’re simply not consuming enough natural gas domestically to make a dent in the potential production windfall. Production would be even higher in 2012, but prices have been so low that driller all but stopped drilling for natural gas, choosing to drill for oil instead.

News flow and press has centered recently on exporting of natural gas, the question has been what the increased demand effect will be on US consumers, where prices are the lowest in the world and production is the highest. LNG exports will provide an important trade capability for the United States, but turning natural gas into value-added products adds a layer of security from worldwide pricing volatility. It could also have a tremendous effect on the economy by providing jobs and domestically produced products.

On the other side of the coin, crude oil, is slowly seeing the US grow as a net exporter although the recent release of US current account figures showed a huge increase in crude oil imports but this could be a one off. Crude oil is trading this morning at 92.19 and has remained in a fairly tight range over the past week. Light Sweet Crude oil prices continued to rise while Brent oil slightly declined: WTI rose by 1.63%; Brent oil declined by 1.33%. As a result, the gap between the Brent oil and WTI contracted again to its lowest level since July 2012; the difference between Brent and WTI ranged between $15 and $18. Based on the recent EIA report, oil stockpiles fell again by 5.6 MB. This week, several publications may affect the oil market. These items include: FOMC meeting, Philly fed index, China’s manufacturing PMI and EIA oil weekly report. At this point the shift in market sentiment to risk off mode, due to worries in the EU over the Cyprus bailout, is pushing the US dollar much higher which will weigh on dollar denominated commodities. We can expect crude oil to remain rangebound.