RD Energy Newsletter: October 2018

October 2018 Energy Update

Key Drivers

  1. Storage deficit this late in the injection season
    1. 20% deficit versus year ago levels
    2. 18% deficit versus 5 year average
    3. Current pace of injections could result in lowest level in storage heading into winter since 2003
  2. Weather – Cold in western half and hot in the eastern half
    1. Below temperatures in western half of U.S. boosting natural gas demand
    2. Above normal temperatures in eastern half of U.S. is boosting natural gas demand in power generation

 

Commentary

The storage deficit this late in the injection season is finally rattling the wholesale markets. With 5 weeks left in the natural gas storage injection season the deficit actually grew last week.  The current storage level trails the level this time last year by 20% and trails the past 5 year average by 18%.  We’ve seen forecasts expecting the natural gas in storage at the beginning of the winter season being at the lowest level since 2003.  Natural gas NYMEX prices closed for October business at the end of September at $3.021/MMBTU or the highest price since the February 2018 price was set at the end of January.  At the time of this writing November natural gas NYMEX is trading at $3.11/MMBTU.  We’ve talked about natural gas trading in a tight price range almost all summer and most of 2018.  The upper resistance price point of that range was $3.06/MMBTU.  With current prices trading higher at $3.11/MMBTU the resistance point has been broken.  This often means that unless the technical traders are covering “short sale” positions that are causing the recent increase, we could see a new higher price range being set as the bull market continues.  In the past we’ve  seen prices trade as high as the next resistance point currently $3.23/MMBTU before backing off some to settle somewhere in the new range.  The big question now is will an El Nino develop this winter.  NOOA thinks there is a 70% chance that El Nino will develop that normally pushes the polar jet stream north keeping the Midwest and northeast temperatures averaging above normal.


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