IAF Advisors Energy Market Outlook Kyle Cooper, (713) 722 7171, Kyle.Cooper@IAFAdvisors.com 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 2012. 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.
$26 $/MMBtu Ratio of NYMEX CL and NG NG $/MMBtu CL $/MMBtu $/MMBTU CL/NG Ratio 9.75 $24 9.00 $22 8.25 $20 7.50 $18 6.75 $16 6.00 $/MMBtu $14 $12 $10 $8 5.25 4.50 3.75 3.00 CL/NG Ratio $6 2.25 $4 1.50 $2 0.75 $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-14 0.00 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
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 1,000 800 US Working Gas Storage - Source - EIA 2014 2013 2012 3 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 1,000 800 750 700 650 550 500 Canadian Working Gas Storage - Enerdata 2014 2013 2012 5 Yr Avg Max Min 450 400 350 300 250 200 150 100 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 BCF
76 US Total Suppy Current Yr Ago 5 Yr Avg 5 Yr Max 5 Yr Min 74 72 70 bcf/d 68 66 64 62 60 58 bcf/d 145 140 135 130 125 120 115 110 105 100 95 90 85 80 75 70 65 60 55 50 45 40 US Total Demand Current Yr Ago 5 Yr Avg 5 Yr Max 5 Yr Min
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