July 14, 2015
- Last week was all about weather on the NYMEX natural gas market. The first half of the week was spent trying to dip below $2.70 on the prompt month, eventually succeeding to do so on Wednesday. However, things turned around on Thursday and by the end of the week the prompt month was back to trading in the upper $2.70’s and the 12 month average broke through $3.00 once again. A big factor in this bullishness was changing summer forecasts as seen below in the NOAA 6-10 day outlook.
- It is also interesting to note how natural gas has responded to crude oil prices as of late. With the pending situation in Iran, crude has been in flux. However, natural gas’ correlation to crude is not nearly as strong as it was in 07-08 when crude was at $150/barrel and natural gas was trading in the $13-$15 range. Instead, this summer natural gas is more concerned with weather forecasts than it is keeping pace with crude. Simply, natural gas has evolved into a fuel that is needed both in the winter and the summer and trades independently of crude.
- Last week’s injection of 91 BCF into natural gas storage was a bit above expectations, but the market did not react bearishly. As noted, traders are more weather focused right now and the increased demand for natural gas generated electricity stemming from the upcoming heat in the Southeast.
- Power prices moved in correlation with natural gas prices last week with most markets dipping around 1%. We will keep a watchful eye on power prices in the coming weeks as power demand picks up across the country.