Power Energy USA

We had Deutsche Bank come out last Tuesday telling investors to BUY natural gas contracts because they were lowering their expectations on our natural gas build up for the winter months.

We also had a fantastic natural gas storage report come out Thursday morning, the best of the year so far.  It exceed the analyst’s expectations, and was 20% greater than the current 5-year average for that corresponding week.

The current natural gas contract dropped in price seven cents over the next two days.  But on Monday reversed itself and went up seven cents.

I think we may have reached our Springtime low and we are dealing with the summer air conditioning months now.  Hopefully, natural gas storage numbers will continue to be positive, and we will see another dip in rates around August/September.

Click here to view a chart detailing the prices.

We may have seen our lows now for the Spring as air conditioner weather will take over electricity rates for the summer.

This morning Deutsche Bank cut its expect peak annual natural gas storage number for this winter’s demand by 100 bcf to 3.37 Trillion cubic feet. The last few years we have peaked around 3.8 – 3.9 T cf. They also suggested natural gas prices would go up because of this and recommended traders BUY natural gas futures. Gas is up today ten cents.

I will keep you posted on any new developments as they take place.

Good News – the weekly Natural Gas storage report released this morning showed an increase of 106 bcf of natural gas in storage. That is higher than expected, and higher than the five-year average and similar week last year on a weekly basis.

This is great as the current natural gas contract traded down 9.5 cents within two minutes of the report being released. This is good for consumers as electricity rates should continue to be weak for awhile longer.

As I have mentioned before, $4.44 is a key price point currently for natural gas.  After the report was released this morning gas prices dropped to $4.39. The next key price point this Spring is $4.22 – $4.26. Let’s see if we get that low again this coming week, even with the holiday coming up Monday.

Enjoy your holiday weekend.

Prices are finally falling.

Yesterday (+Thursday) the current natural gas contract (June) closed at its lowest price since +April 3rd after storage levels increased more than the analysts expected for the third straight week. This finally started to ease concerns about a potential natural gas shortage next winter.

On +Tuesday of this week (+May 6th) gas contracts traded right around the magic $4.80 mark, finally closing at $4.799. That was significant because prices could not break through to the upside. Once the storage numbers came out traders sold, and sold big. June contract prices dropped nearly 17 cents for the day on +Thursday, closing at $4.572. And we are down about four cents already this morning (+Friday).

The weekly storage data is once again playing a critical role in the gas market because stockpiles got so low this winter with the horrible weather up north and the growing demand for natural gas. Producers, as I have mentioned, need to exceed the five year average each week by 20-35 bcf for the next six months to give us a normal amount of gas in storage for the winter.

Last week the gas storage numbers were 24 bcf above the 5-year average. The latest addition didn’t meet these thresholds, beating the five-year average by just 2 bcf. But additions to storage in early April were so low that natural gas traders now have lower expectations. Simply meeting the 5-year average is enough to reign in prices now.

There are pipelines showing daily increases in the gas coming through and into Midwestern storage facilities. This, coupled with the EIA storage numbers, are giving some faith that surplus production is rising fast enough to bring down prices.

Lower natural gas prices means lower electricity rates.

Click here to view a chart detailing the prices.

Natural gas prices have dropped to their lowest closing price since +April 1st. The lowest we reached this Spring thus far was $4.221 intraday on +April 2nd. As I have mentioned in my prior notes the biggest factor for keeping gas prices high was the severe draw down from storage we had with this winter’s frigid weather and the fear we would not be able to rebuild an adequate supply of gas for next winter.

Stockpiles have begun to come off of their 11-year lows. It is estimated, as I have mentioned, we will need 20 – 35 bcf over and above the normal 5-year average EACH WEEK going into storage for the next six months in order to comfortably meet the demands of next winter. We have only met that goal once so far this year.

But natural gas storage numbers have exceeded the analyst’s estimates each of the past three weeks, and so prices have come down recently. Traders are increasingly expecting inventory additions to strengthen due to the shale boom happening in our country and because they are seeing increases in gas coming through pipelines destined for Midwestern storage facilities.

We closed on the current contract yesterday at $4.358. We have dropped below the $4.44 level and the next support level should be around $4.22 – $4.26.

The analysts were looking for a build up in our natural gas storage supplies of 75-76 bcf in this morning’s report that came out at 9:30am.

We ended up with an 82 bcf build. That should lead to LOWER prices for two reasons –

1) the more gas in storage above what the experts project is bearish, and will generally drive gas and electricity prices downward;

2) as I mentioned in an earlier note this week, we have to see 20-35 bcf more than 5-year average each week to get our supply of natural gas back to the levels needed for another cold winter come November – today’s number was 24 bcf higher than the 5-year average and 41 bcf above the same week last year.

Hopefully we are now headed in the right direction for lower electricity prices short term. Natural gas was down 1.5 cents just before the report and was down 6.5 cents right after the report. Good news!

I believe we have finally hit a high point for awhile in natural gas pricing. As you can see from the attached charts we hit $4.805 on the current contract Thursday (4/24) before the Natural Gas Storage Report came out.

This week’s report was in line with the analyst’s projections so pricing has gradually started to come down, closing today (Friday 4/25) at $4.647. I think we have a 50-50 chance we will see gas prices drop 8-10% further from these levels over the next month (May).

The analysts are expecting a record amount of gas to be brought out of the ground this year. Second, check out the last two weekly reports – they thought the first was bad and the second was just on projection. You can see though from my notes the amount in storage two weeks ago was 997 bcf below the 5-yr average, and this week’s was 1,008 bcf below the 5-yr average. In my view, we are finally catching up to the 5-year average pace and we should see our storage numbers improve.

Having a trillion cubic feet of gas less than the 5-year average in storage is not good, but if we continue to see improving amounts going into storage this will help lower prices. The key pricing numbers to watch will be:
$4.53
$4.44
$4.34
$4.22 (the April 2nd low…)

I don’t believe we will get any lower in May than $4.22, if we can even get down that low. We will not reach the $3.95 low we saw so far in the year on January 10. We may have to wait until August to challenge that low.

We have a great window now to sell before any summer time spike takes place.

Natural Gas Chart

We may have stemmed the tide.

The analysts were looking for a build-up in the natural gas storage numbers in the report that came out this morning of around 50 bcf. It came out as a plus 49 so it was as expected.

The current contract was up about 1.5 cents before the report, and was up about 1.5 cents after the report came out. We hit a new high of $4.80 this morning before the report, but it is trading now around $4.71.

It would appear from this week’s trading gas has settled down, and may trade a little lower over the next couple of weeks, barring any new wild weather reports.

We are currently in a holding pattern waiting to see what happens this Thursday with the natural gas storage report numbers.

As I mentioned last Thursday – the small build in the storage supply was a huge disappointment to the market, and prices shot up.  Natural gas is storage as of last week’s report was exactly half of what was in storage a year ago, and 54.3% below the 5-year average.

Most market analysts agree drillers will bring a record amount of natural gas out of the ground this year.  The concern right now in the market is we are not building the amount of gas in storage fast enough to meet next winter’s needs.  Last week’s report showed 850 bcf in storage.  We will need between 2,600 and 3,100 bcf of natural gas to meet the nation’s heating needs this winter.

Yesterday, natural gas prices dropped 4.4 cents.  Today natural gas prices are up 4 cents in a very narrow trading range.  No one can make up their minds as to which way prices will go until we see this Thursday’s report.

Stay tuned…

The analysts on average were looking for an additional 34 bcf of natural gas to be added to the gas in storage.  The analyst I follow most closely was looking for an increase of 39 bcf.  This would be the second week this year we would have had a build up in storage reserves, but still far below the 5-year average.

Today’s report came out a dismal build of only 24 bcf.  Natural gas had traded as low as $4.484 so far this morning.  It was down 2 cents just before the report came out this morning, but quickly jumped UP 12 cents with the report.

This does not bode well for short term electricity rates.  Our storage supply of natural gas is now exactly HALF what it was a year ago, and 52% below our five-year average.  Add to this the fact President Obama’s war on coal which runs many of our power plants, we may have a difficult time heating our homes this coming winter unless production and storage numbers for natural gas pick up soon.

Let’s hope next Thursday’s report is better.