October natural gas is expected to open 5 cents lower Monday morning at $2.66 as a leading firm downgrades its outlook for natural gas for 2016 and lower energy requirements are seen for the Southeast. Overnight oil markets fell hard.
A top energy analyst sees natural gas prices constrained through 2016. "Since U.S. oil and gas prices are not closely linked anymore, it is not surprising that Henry Hub gas prices have consistently hovered just under our $3.00/Mcf forecast while oil prices have crashed and burned," said Raymond James and Associates in a Monday morning report to clients.
They see infrastructure improvements and continued Marcellus Shale growth as more than offsetting production declines driven by price changes.
"The problem is that falling gas extraction costs and stubbornly low industrial gas demand growth means our 2016 gas price decks of $3.55/Mcf and our long-term deck of $3.75 is too high. Put simply, there is plenty of U.S. natural gas to meet rising demand at prices of $3.25 (or possibly lower) for the next five years," the firm said. "Sure, oil-directed U.S. rig count decline is having some slowing effect on the pace of associated gas supply growth, though not as much as some would have expected. The bigger issue is that estimated Marcellus growth (about 1.5 Bcf/d) combined with soon-to-open pipeline takeaway capacity (of which we have identified about 4 Bcf/d) is set to more than compensate for price-driven associated gas production declines elsewhere.
"On the gas demand side, power generation and exports to Mexico have been strong, but industrial demand has been consistently much weaker than we (and most) have modeled. Of course, LNG projects should help in 2016/2017, but there should still be more than enough gas at $3.25/Mcf to satisfy this growth. The bottom line is that we think readily available Marcellus/Utica gas supply will keep a lid on U.S. natural gas prices well into 2016. While there are reasons to believe that the demand picture will look more encouraging in 2017 and beyond,
the industry's ability (and willingness) to deliver low-cost supply represents an offset to any gas demand resurgence."
Erika over the weekend lost the battle with the mountains of Hispaniola and degenerated into a tropical rainstorm now expected to pour heavy load-killing rain on Cuba and Florida. "Flooding downpours will continue to spread from Cuba to Florida, grazing the Bahamas in the process. In addition to flash flooding, mudslides are a serious concern in the mountains of Cuba. Rain totals of two to four inches can be expected along the coast and into central Florida, with widespread one to two inches across the Southeast and the rest of Florida," said AccuWeather.com meteorologist Kristina Pydynowski.
In the meantime, Hurricane Fred is pummeling the Cape Verde Islands in the far eastern Atlantic. The National Hurricane Center in its 8 a.m. EDT Monday report said Fred was 65 miles southeast of the Cape Verde Islands and was holding winds of 80 mph. It was moving to the northwest at 12 mph.
In overnight Globex trading October crude oil tumbled $1.02 to $44.20/bbl and October RBOB gasoline skidded more than 2 cents to $1.3723/gal.