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December Futures Defy Gravity, Gain 30.7 Cents After EIA Supply Stats
December natural gas futures bounded higher in active trading Thursday in spite of inventory data that placed supplies at record levels. The Energy Information Administration (EIA) reported working-gas supplies rose a hefty 66 Bcf, well above the mid 50 Bcf expected by the industry.
The December futures contract put in its low of the day of $8.30 just after the number was released, but thereafter it was off to the races. December settled 30.7 cents higher at $8.637, and January natural gas rose 33.7 cents higher to $8.997. Paradoxically, December crude oil fell $1.04 to $93.49/bbl.
The prevailing arguments for higher natural gas prices center around a weak dollar, imminent cold weather and the financial community’s desire to seek a lower Btu-cost energy product to play against higher crude oil prices. Somewhat lost in the shuffle is lower imports of liquefied natural gas (LNG) to the U.S., as well as greater linkage of gas and oil prices in international markets such as Asia.
“There were supposed to be six LNG plants [built] in Qatar, and they still are [being built], but their construction timetable has been pushed back,” said Stephen Smith of Stephen Smith Energy, a Natchez, MS-based consulting firm. He added that in addition to the reduced supplies of LNG from the Middle East, 8,000 MW of power generating capacity has been lost in Japan due to an earthquake. “Basically, an entire nuclear generation complex was taken down, and increased LNG is being used to make up the difference,” he said.
The Pacific Rim countries of Japan, South Korea and Taiwan have a voracious appetite for LNG as they rely on LNG to supply 90% or more of their natural gas requirements.
“There is now a new linkage between oil and gas, and in Asia gas has a stronger link to oil since the natural gas liquids extracted from the gas stream are priced closer to crude oil. The higher crude oil prices go, the less LNG for the U.S.,” Smith said. “In addition to fuel competition in the U.S. and the competition for ethane and propane in the wet natural gas stream, you now have a global market for LNG. Also, residual fuel has reduced itself to a core market for which there are no easy gas substitutes. The oil-gas linkage is changing as LNG becomes more important.”
Linkage or not, expected cold weather next week should support near-term natural gas prices. According to AccuWeather, a blast of cold air will make its way into the Great Lakes region early next week. “This air mass will bring the coldest air of the season. An area of low pressure dipping south from Canada will wrap around the cold air and move eastward into midweek,” said AccuWeather meteorologist Kate Walters. She added that the Northeast should receive the cold air by the middle to latter part of next week.
The U.S. dollar index traded at 76.685, just slightly higher than the record low posted Wednesday of 76.465 in trading on the New York Board of Trade.
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