IAF Advisors Energy Market Outlook Kyle Cooper, (713) , October 31, 2014

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1 IAF Advisors Energy Market Outlook Kyle Cooper, (713) , October 31, 2014 Price Action: The December contract rose 17.5 cents (4.7%) to $3.873 on a 33.3 cent range. Price Outlook: The market again established a new low as weather forecasts extended above normal temperatures into November. However, the degree of warmth moderated and prices were also able to post a new high. We had been mentioning the possibility of establishing both a new high and low, but failed to do so last week. Although prices are closer to last week s high and that suggests establishing a new high, if weather forecasts remain moderate, a new high may be difficult and considering an expanded range last week, a rare inside week is a possibility. Liquidation of the managed money net long position continued and stands at levels not seen since March Total open interest fell slightly to 3.64 million as of October 28 with the option related position also slipping. CME futures aggregated open interest rose to 897,000 as of October 30. Some headlines may state speculators are now net short as the CME futures and options combined position did indicate that is true. However, this still does NOT reflect the daily price implications of a combined trading book across all financial instruments. Weekly Storage: US working gas storage for the week ending October 24 indicated a build of 87 bcf. Thus total working gas inventories rose to 3,480 bcf. Current inventories fall 299 bcf (7.9%) below last year and 303 bcf (8.0%) behind the 5 year average. Storage Outlook: This week did not establish a new 5 year weekly maximum. With warm weather expected to continue into November, inventories are projected to exceed 3, bcf in mid November. Inventories are likely to exceed last year by mid December. Supply Trends: Total supply rose 0.7 bcf/d to 73.9 bcf/d. US production rose while both Canadian imports and Mexican exports were lower. LNG imports were unchanged. The US Baker Hughes rig count rose 2 as oil activity fell while natural gas rose. The total US count now stands at 1,929. The Canadian rig count rose 3 to 429. Thus, the total North American rig count rose 5 to 2,358 and now surpasses last year by 222. The higher efficiency US horizontal rig count slipped 2 to 1,353 and rises 249 above last year. There remains little indication of a significant change in 3rd quarter US E&P earnings calls that the lower oil price is dramatically affecting Capex plans. The EIA monthly production report continued to reveal higher lower 48 natural gas production with August, the latest available, posting a new record. November production should also rise as new infrastructure is completed. Demand Trends: Total demand rose 0.9 bcf/d to 60.5 bcf/d. Higher R&C and industrial demand offset lower power demand. Electricity demand fell 1,153 gigawatt hrs to 68,746, which trails last year by 517 (0.7%) and the 5 year average by 1,337 (1.9%). Other Factors: The S&P 500 rose smartly from last week s lows.

2 $26 $/MMBtu Ratio of NYMEX CL and NG NG $/MMBtu CL $/MMBtu $/MMBTU CL/NG Ratio 9.75 $ $ $ $ $ $/MMBtu $14 $12 $10 $ CL/NG Ratio $ $ $ $0 Oct-11 Jan-12 Feb-12 Mar-12 Apr-12 Jun-12 Jul-12 Oct-12 Jan-13 Feb-13 Mar-13 Apr-13 Jun-13 Jul-13 Oct-13 Jan-14 Feb-14 Mar-14 Apr-14 Jun-14 Jul-14 Oct NYMEX Calendar Strips $6.50 NG Cal 2014 NG Cal 2015 NG Cal 2016 NG Cal 2017 NG Cal 2018 $6.25 $6.00 $5.75 $5.50 $5.25 $5.00 $4.75 $4.50 $4.25 $4.00 $3.75 $3.50 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14

3 BCF 4,000 3,800 3, 3,400 3,200 3,000 2,800 2, 2,400 2,200 2,000 1,800 1, 1,400 1,200 1, US Working Gas Storage - Source - EIA Yr Avg 5 Yr Avg Forecast Max Min 27-Dec 10-Jan 24-Jan 7-Feb 21-Feb 7-Mar 21-Mar 4-Apr 18-Apr 2-May 16-May 30-May 13-Jun 27-Jun 11-Jul 25-Jul 8-Aug 22-Aug 5-Sep 19-Sep 3-Oct 17-Oct 31-Oct 14-Nov 28-Nov 12-Dec 26-Dec 4,000 3,800 3, 3,400 3,200 3,000 2,800 2, 2,400 2,200 2,000 1,800 1, 1,400 1,200 1, Canadian Working Gas Storage - Enerdata Yr Avg Max Min Dec 10-Jan 24-Jan 7-Feb 21-Feb 7-Mar 21-Mar 4-Apr 18-Apr 2-May 16-May 30-May 13-Jun 27-Jun 11-Jul 25-Jul 8-Aug 22-Aug 5-Sep 19-Sep 3-Oct 17-Oct 31-Oct 14-Nov 28-Nov 12-Dec 26-Dec BCF

4 76 US Total Suppy Current Yr Ago 5 Yr Avg 5 Yr Max 5 Yr Min bcf/d bcf/d US Total Demand Current Yr Ago 5 Yr Avg 5 Yr Max 5 Yr Min

5 ADDITIONAL INFORMATION AVAILABLE UPON REQUEST This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any commodity, futures contract, or option contract. Although any statements of fact in this report have been obtained from and are based upon sources that IAF Advisors believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. IAF Advisors, its officers and/or employees, may at any time have a long and/or short position in any commodity, futures contract, or option contract mentioned in this report. All opinions and estimates included in this report constitute IAF Advisors judgment as of the date of this report and are subject to change without notice IAF Advisors.