While terrorist attacks on Middle East energy infrastructure have spooked primarily U.S. crude markets over the last few years, Monday’s major attack on Mexico’s natural gas pipeline infrastructure, the second in the past three months, helped to jolt natural gas futures 39 cents higher to close Monday’s regular session at $5.891 after trading between $5.455 and $5.920 on the day.
The explosions that could be felt 12 miles away, ruptured at least four pipelines run by Mexico’s state-run Petroleos Mexicanos (Pemex), one reportedly a major natural gas line, early Monday. The blasts were believed to be the result of terrorism carried out by the People’s Revolutionary Army, the same group that claimed responsibility for the gas pipeline attack in Mexico in July.
While Pemex initially said it would be able to maintain fuel supplies “through extraordinary measures,” there were later reports that factories that had lost their natural gas supplies had been closed down. Pemex said the fires broke out in four areas and were expected to “last for some hours until the remaining product runs out.” There were no details on the extent of the damage.
Traders said the explosions definitely have real implications on U.S. energy supply and demand. “The Mexican story is real to the U.S. energy markets and I think it spooked natural gas futures higher on Monday,” said a Washington, DC-based broker. “It is a new unknown factor on the markets, which has the potential of being a long-term unknown. While natural gas is not yet completely a global commodity due to transportation issues, it is certainly a global market when it comes to the U.S. and Mexico. If this is going to suck down some more of our gas inventory to go down there, and this becomes more of a long-term campaign by the rebels, then our markets could certainly be affected.
“In addition, the funds have proved that they have no loyalty to the long or short side of the natural gas futures market, they just want to go in the direction the trend is going. When you have 148,000 noncommercial net-short positions cover at the same time, that is going to push prices higher. Will that be because of a storm? Only time will tell.”
The broker noted that even without disruptions, U.S. gas flows to Mexico. “Believe it or not, Mexico is a net importer of natural gas from the United States,” he said. “While their biggest glass manufacturer just announced that they were idling plants, that will likely only be until they contract with American gas suppliers. News of these attacks is certainly not nothing. If this is some rebel group starting a campaign, we definitely have to keep an eye on this.”
While there had been just a small amount of gas moving from the United States into Mexico before the blast, there are several connecting pipelines with capacity available, and those supplies could be increased (see related story).
Noting that “calling a bottom” in this market has been “rather painful” over the last couple of months, the broker noted that the market is now through summer and officially halfway through hurricane season, so a corner has been turned. “From a technical viewpoint, we had a key reversal day Monday with a new low for the move, basis the October contract and a higher close than the two previous session finishes,” he said. “For technicians, this is a buy signal.”
The broker added that the tropics are also still “very much on the radar” as far as storms are concerned. “In addition to the strife in Mexico, there are also a number of tropical waves cued up in the Atlantic, which could turn into something else to fuel the bulls,” he said. “The satellite shows several things out there and if they do make it into the Gulf of Mexico, there is still no lack of hot water to build a storm out of. If we get one of these waves to curve up into the Gulf, you have to remember, it only takes one.”
Joe Bastardi of AccuWeather is currently eyeing numerous tropical systems, including now Tropical Depression Gabrielle. Gabrielle is now down to 35 mph winds and headed out into the North Atlantic. “I have five features I am watching, including Gabrielle which is a non-factor FROM TOMORROW [Tuesday] ON,” Bastardi declared in his weather blog. He noted a Gulf of Mexico system is something that, although not alive, has the potential to be a problem in the western Gulf at midweek. “The system east of Puerto Rico is getting thunderstorms now and will be player to watch later in the week. The wave at 10N and 35W is being ignored by models, but previously was supposed to develop and recurve (the last two models that did that were Dean and Felix) and we have a large system off the African coast coming west.”
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