News / Business
Natural Gas Price Report for October 16, 2009
With the rebound in drilling, the supply/demand balance is not expected to tighten dramatically. Plus, there is plenty of uncompleted wells and shut-in gas that can return to the market to balance supply and demand if needed.
On Thursday, the Energy Information Administration (EIA) reported a storage injection of 58 Bcf for the week ending October 9, 2009. This was higher than expected, and it helped to counter upward movement caused by the colder weather. The November 2009 natural gas NYMEX price initially fell following the release of the report, but with the front-month crude oil NYMEX contract rallying by more than $2 per barrel, the downside was limited. However, the outlook for natural gas and crude oil is very different.
Relative to natural gas prices, the drilling rig count has grown steadily over the past three months. After bottoming at 665 rigs, the natural gas drilling rig count has risen to 726. With higher prices for 2010 and beyond, drilling is rebounding and this means that the production declines that many forecasted for 2010 may not be as steep as expected. Plus, storage inventories are now at 3,716 Bcf, which is 450 Bcf higher than last year at this time. According to the EIA, storage inventories are capable of holding 3,889 Bcf of working natural gas, so inventories are now just 173 Bcf below that level and there are still three weeks of injections remaining. In addition, while winter is around the corner, the recent stretch of cold weather is coming to an end as most points throughout the U.S. should experience a warm-up next week. However, that warm-up may be short-lived as the National Weather Service predicts a return to below-normal temperatures for the eastern half of the nation by October 23, 2009. Overall, the outlook for natural gas isn't that bullish. There is plenty of natural gas in storage, demand remains down, and the drilling rig count is rebounding. Right now, natural gas is trading on these fundamentals.
Unlike natural gas, crude oil is trading on technicals. Crude oil inventories should be deemed adequate as they are currently 29.6 million barrels higher than last year at this time, but that fact is irrelevant at this time. The future of crude oil prices rests almost entirely with the U.S. Dollar. What is bearish for the U.S. Dollar is bullish for crude oil prices. As the value of the U.S. Dollar falls, investors flee the safe haven of the greenback and look toward other investments, primarily crude oil and natural gas. This creates a surge of buying for crude oil, driving it higher. This is exactly what is happening today. As the U.S. Dollar has fallen to new lows in 2009, crude oil prices have rallied to more than $77 per barrel -- a new 2009 high. The only thing that is likely to stop the rally in crude oil is strength in the U.S. Dollar against other currencies. When the bottom for the U.S. dollar is in, it should mark a high for crude oil as well, but there is no way to know if that situation is nearing or if it is still several months away.
Learn more about the direction of crude oil and natural gas prices in the October edition of The Advisor, a publication of Energy Solutions, Inc. Request your complimentary copy by sending your request to request-oct-pr16@energysolutionsinc.com or call (608) 848-9859.
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About Energy Solutions, Inc.
Formed in 1996, Energy Solutions, Inc. is independently owned. With more than 25 years of experience in the natural gas industry, our team focuses on natural gas prices and in helping businesses improve their internal processes for the purchase of natural gas.
