Factor - Natural Gas Supply
Commentary
The most recent Baker Hughes rig count, released on June 1, indicated that the number of natural gas-directed drilling rigs fell to its lowest level since 1999. As a counterpoint, rigs classified as oil-directed rigs reached their highest level since 1987. The industry has seen a huge shift to oil production, which contributes some to natural gas supply via associated production - where gas is drilled as a byproduct of crude and liquids. Imports from Canada remain about 0.5 billion cubic feet per day (Bcf/d) lower than 2011 year-to-date on a net basis, but U.S. exports through the Great Lakes region are down significantly since the beginning of the year.
Factor - Demand
Commentary
Gas-fired electric generation continues its strong run, logging year-over-year gains of 6.5 Bcf/d. The Federal Reserve's industrial production index in April ticked up 1.1 percent over the previous report, continuing a trend of year-over-year growth. Threats of a global economic slowdown attempted to derail the heightened export projections, and the May Purchasing Manager's Index came in at 53.5, still indicative of growth, but below April's reading.
Factor - Weather
Commentary
A relatively warm ending to May manifested itself in higher power generation nationwide. Two early Atlantic storms posed little threat to the coastal states, but demonstrated the unpredictability of weather systems. Outlooks for June weather indicate above-normal heat in the upper Midcontinent, with slightly-above-normal temperatures throughout the Southeast and Northeast.
Factor - Storage
Commentary
Storage levels stand at 2.815 trillion cubic feet as of the beginning of June - almost 750 Bcf higher than the previous two years during this period. Increased power generation and elevated levels of coal-to-gas switching resulted in smaller injections during May. Despite warmer weather and increased electric generation, natural gas storage inventory may continue to set record highs and test the limits of storage capacity.
Factor - Economy
Commentary
Equity markets held true to the old adage: "Sell in May and go away." The S&P 500 fell more than 7.5 percent in May, resultant of numerous stresses within the global economy. Front and center was the fragility of the Eurozone - the specter of a Greek exit from the common currency - specifically, the extraordinary complex logistics and contingencies of such a maneuver - weighed heavily on the Euro's value versus the U.S. dollar. As a consequence, stocks and dollar-denominated commodities (gold excepted) underwent strong price corrections. Most notably, crude oil prices fell precipitously as global demand forecasts suffered amidst fears of a widespread economic slowdown.
Factor - Summary
Commentary
Continued drilling for crude oil and liquids continue to sustain North American production of natural gas through associated production. Industrial demand and gas-fired electric generation have responded to lower natural gas prices, but a more mild summer as compared to the extreme heat of the last two years may assist in bringing the storage inventory closer to the five-year average. Without major supply disruptions or hurricanes, natural gas prices may remain at low levels through the fall.
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Factor - Natural Gas Supply
Commentary
The most recent Baker Hughes rig count, released on June 1, indicated that the number of natural gas-directed drilling rigs fell to its lowest level since 1999. As a counterpoint, rigs classified as oil-directed rigs reached their highest level since 1987. The industry has seen a huge shift to oil production, which contributes some to natural gas supply via associated production - where gas is drilled as a byproduct of crude and liquids. Imports from Canada remain about 0.5 billion cubic feet per day (Bcf/d) lower than 2011 year-to-date on a net basis, but U.S. exports through the Great Lakes region are down significantly since the beginning of the year.
Factor - Demand
Commentary
Gas-fired electric generation continues its strong run, logging year-over-year gains of 6.5 Bcf/d. The Federal Reserve's industrial production index in April ticked up 1.1 percent over the previous report, continuing a trend of year-over-year growth. ThGas-fired electric generation continues its strong run, logging year-over-year
gains of 6.5 Bcf/d. The Federal Reserve's industrial production index in April
ticked up 1.1 percent over the previous report, continuing a trend of
year-over-year growth. Threats of a global economic slowdown attempted to derail
the heightened export projections, and the May Purchasing Manager's Index came
in at 53.5, still indicative of growth, but below April's reading.
Factor - Weather
Commentary
A relatively warm ending to May manifested itself in higher power generation nationwide. Two early Atlantic storms posed little threat to the coastal states, but demonstrated the unpredictability of weather systems. Outlooks for June weather indicate above-normal heat in the upper Midcontinent, with slightly-above-normal temperatures throughout the Southeast and Northeast.
Factor - Storage
Commentary
Storage levels stand at 2.815 trillion cubic feet as of the beginning of June - almost 750 Bcf higher than the previous two years during this period. Increased power generation and elevated levels of coal-to-gas switching resulted in smaller injections during May. Despite warmer weather and increased electric generation, natural gas storage inventory may continue to set record highs and test the limits of storage capacity.
Factor - Economy
Commentary
Equity markets held true to the old adage: "Sell in May and go away." The S&P 500 fell more than 7.5 percent in May, resultant of numerous stresses within the global economy. Front and center was the fragility of the Eurozone - the specter of a Greek exit from the common currency - specifically, the extraordinary complex logistics and contingencies of such a maneuver - weighed heavily on the Euro's value versus the U.S. dollar. As a consequence, stocks and dollar-denominated commodities (gold excepted) underwent strong price corrections. Most notably, crude oil prices fell precipitously as global demand forecasts suffered amidst fears of a widespread economic slowdown.
Factor - Summary
Commentary
Continued drilling for crude oil and liquids continue to sustain North American production of natural gas through associated production. Industrial demand and gas-fired electric generation have responded to lower natural gas prices, but a more mild summer as compared to the extreme heat of the last two years may assist in bringing the storage inventory closer to the five-year average. Without major supply disruptions or hurricanes, natural gas prices may remain at low levels through the fall.
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