Bull/Bear Market Summary  

Natural gas market summary

Supply - Demand - Weather - Summary - View all

Factor - Natural Gas Supply

Outlook

Effect on price

 
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Commentary

Although natural gas production is up 2.6 billion cubic feet per day (Bcf/d) over last year, the industry continues to see a pullback from new drilling activity. The rig count in early October reached a 13-year low. Only eight times in the past 12 months has the rig count seen a small gain. But overall the count is still down 53 percent since peaking at 936 last October. The steady decline in natural gas drilling has led experts to believe that producers are really beginning to react to the natural gas supply glut.

 

 

Factor - Demand

 

Outlook

Effect on price

 
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Commentary

In September, gas-fired electric generation has attributed to a 4.5 Bcf/d increase in demand year-over-year and the trend is expected to continue with October demand forecasted be 2.7 Bcf/d higher than last year. Coal production has dropped to levels even lower than last year, which means natural gas is the likely to remain the lower-cost fuel choice for power in the months to come. There are also signs of a slightly stronger economy, with the Purchasing Managers Index jumping back above 50 in September – and perhaps with this news, the industrial demand for natural gas may return.

 

Factor - Weather

 

Outlook

Effect on price

 
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Commentary

Weather experts have had tremendous difficulty in determining this winter’s outlook. The summer of 2012 was the third-hottest on record, similar to last summer, which was the second-hottest summer on record. Many predict a return to more normal weather for October and November, but there is little certainty – as it is hard pin down the meaning of “normal” as of late.

 

Factor - Storage

 

Outlook

Effect on price

 
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Commentary

The U.S. Energy Information Administration estimates that the total natural gas storage capacity is 4.2 trillion cubic feet (Tcf). Throughout the summer, natural gas storage injections have kept the levels building and we have now reached almost 3.6 Tcf. Should the injections continue, even at an average pace, there is no question that there will be plenty of gas to withdraw for this winter’s heating load.

 

Factor - Summary

 

Outlook

Effect on price

 
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Commentary

It has become common knowledge to the industry that natural gas supplies are available at record levels. Nevertheless, producers are pulling in the reins on new production and, meanwhile, natural gas continues to be the substitute for coal in power generation. This winter season has been trading at the highest price points all year – mainly with the expectations that cooler weather may boost demand.

 

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