Energy Market Outlook – February 13, 2017

Energy News and Market Information for the week of 2/13/2017

Author: Jason Scarbrough

 

Natty Bulls are barely hanging on as get over the midway hump of winter  (the 4th of 8 weeks following the solstice) and it doesn’t look like old man winter has any end of season Hail Marys given the current forecasts.

Natural Gas:   Neutral/Bearish

The bulls made a good run of it with the Jan 17 contract in anticipation of that “La Nina” winter to make up for last year’s lack of real heating demand.  So far, other than a few wintery bursts, any kind of sustained cold winter hasn’t materialized in 2017.  After testing $4.00 – prices almost immediately fell off a cliff and haven’t really broken back above $3.50 since (with good reason).   The story is again quickly becoming the surplus natural gas storage will have after we stop pulling from it – it is looking like it will be a very nice cushion starting this April.

In addition to another overall mild winter (so far) – oil prices have found some strength in the past 3 months which has driven increased production in the oil patch.  In turn, natural gas production has also ticked up after dropping most of last year.  This is another nail in the coffin for natty bulls short term – injections will likely hit the ground running this year – and without a very hot summer …. The end of injection season could see another record.

The EIA reported a reasonable 152 BCF delivery taking total underground down to 2.56 TCF.  This week’s report was pretty much normal and within the range of estimates.  Boring isn’t good for the bulls and bears are certainly feeling a bit more emboldened given the lack of weather that we’ve had and in the outlook.

Note IRI’s forecast Feb-April (an updated model will come Wednesday this week) – I think my 7 year old could see that this isn’t a very bullish outlook for natural gas demand.

 

Technicals – Bearish

All indicators remain bearish – MACD, Parabolic, etc.

Key levels that have been tested recently include ~3.10 and the psychological 3.00 level.  A break of these levels – that seems likely as I write this – would take trade to a possible support of ~2.90.

Looking forward the March/April spread that we have watched all winter has completely cratered – showing a lack of confidence in any kind of storage destruction coming before injection season.  Looking at the forward curve for natty – anything past cal 17 drops off significantly as well – giving me the impression that there isn’t much confidence in pricing strength even with all of the “new demand” coming to the US in the next 5 years.

I think that prices are generally too expensive right now – however, it wouldn’t be completely stupid to look at hedging Cal 18- Cal 23.