Short-Term Energy Outlook

March 11, 2014 Release

 As reported by US Energy Information Administration

Highlights   

 

  • Temperatures east of the Rocky Mountains have been significantly colder this winter (October – February) compared with the same period both last winter and the average for the past 10 years, straining distribution networks and putting upward pressure on consumption and prices of fuels used for space heating.  U.S. average heating degree days were 13% higher than last winter (indicating colder weather) and 10% above the October  through February 10-year average.  The Northeast was 13% colder than last winter, the Midwest and South both 19% colder, while the West was 5% warmer.

 

  • The cold weather this winter had the greatest effect on propane prices, particularly for consumers in the Midwest.  Cold temperatures have tightened supplies that were already low heading into the winter heating season.  Residential propane prices in the Midwest rose from an average of $2.08 per gallon (gal) on December 2, 2013, to $4.20/gal on January 27; prices have since fallen back to $2.78/gal as of March 3.  EIA now expects that propane prices in the Midwest will average $2.62/gal over the winter (51% higher than last winter) while those in the Northeast will average $3.47/gal (15% higher than last winter).

 

  • Cold temperatures have continued to tighten heating oil supplies and helped drive up retail prices.  Since the beginning of the year, distillate inventories in the Northeast (Petroleum Administration for Defense Districts 1A and 1B) have fallen by almost 6.9 million barrels to reach 18.3 million barrels on February 28, 6.4 million barrels below inventory levels for the same week in 2013.  Weekly U.S. residential heating oil prices increased by $0.20/gal during January and have averaged near $4.24/gal since the beginning of February.  Despite the recent increases, EIA expects that U.S. heating oil prices will average $3.83/gal this winter, $0.04/gal (1%) lower than during last year’s winter heating season, mainly because of lower crude oil prices.

 

  • The North Sea Brent crude oil spot price in February averaged near $110 per barrel (bbl) for the eighth consecutive month, while West Texas Intermediate (WTI) crude oil prices increased by $6/bbl from the previous month to reach $101/bbl.  Continued high refinery runs helped reduce inventories at the Cushing, Oklahoma, storage hub to 32 million barrels, the lowest level since February 2012, and helped strengthen WTI prices.  The discount of WTI crude oil to Brent crude oil, which averaged more than $13/bbl from November through January, fell to $8/bbl in February.  EIA expects the WTI discount to average $10/bbl in 2014 and $11/bbl in 2015.

 

  • Cold weather also contributed tocontinuing large withdrawals of natural gas from storage and a surge in natural gas spot prices, which hit record levels in several markets during periods of extreme cold.  Natural gas working inventories on February 28 totaled1.20 trillion cubic feet (Tcf), 0.91Tcf(43%) below the level at the same time a year ago and 0.76Tcf(39%) below the five-year average (2009-13).  Henry Hub natural gas spot prices were volatile over the past two months, increasing from $3.95 per million British thermal units (MMBtu) on January 10 to a high of $8.15/MMBtu on February 10, before falling back to $4.61/MMBtu on February 27, and then bouncing back up to $7.98/MMBtu on March 4.  EIA expects that the Henry Hub natural gas spot price, which averaged $3.73/MMBtu in 2013, will average $4.44/MMBtu in 2014, an increase of $0.28/MMBtu from the 2014 projection in last month’s STEO.  Residential natural gas prices are expected to average $10.05 per thousand cubic feet (Mcf) this winter, an increase of $0.30/Mcf (3%) from last winter.

 

http://www.eia.gov/forecasts/steo/

As reported by Zach Carter for Huffington Post

WASHINGTON — Two economists at the St. Louis Federal Reserve have published findings that indicate that Wall Street speculation is responsible for 15 percent of the increase in oil prices over the past decade, a finding with significant implications for the recent sharp rise in gas prices.

While politicians have little ability to alter the price swings of commodities like oil, regulators have both the authority and policy tools to do so. The Commodity Futures Trading Commission is responsible for overseeing the financial market for oil. The 2010 Wall Street reform bill gave the CFTC new power to limit excessive speculation, but the rule will not go into effect until later this year.

According to St. Louis Fed economists Luciana Juvenal and Ivan Petrella, speculation in oil markets was the second-biggest factor behind the past decade’s price run-up, behind increased global demand for oil, which accounted for 40 percent of the increase.

“Speculation was the second-largest contributor to oil prices and accounted for about 15 percent of the rise,” the economists wrote. “The effect that speculation had on oil prices over this period coincides closely with the dramatic rise in commodity index trading — resulting in concerns voiced by policymakers.”

Commodity indexes allow speculators to bet on the price of several commodities at once, and have become very popular investment tools for both Wall Street investment companies and pension funds. Between 2004 and 2008, the total volume of trading activity in commodity indexes jumped from $13 billion to about $260 billion, according to research by Michael Masters, founder of Masters Capital Markets and the financial reform nonprofit Better Markets.

Masters and others have noted that speculation can exaggerate price swings otherwise dictated by fundamental supply-and-demand dynamics, and can also force prices to move contrary to supply-and-demand predictions. During 2008, when oil prices soared to their highest level on record, they did so during a period in which global demand was low and global supply was high — what should have been a recipe for lower prices.

The most recent Fed study concludes that economic fundamentals are still the primary determinant, saying only that speculation can “exacerbate” price swings.

“Global demand remained the primary driver of oil prices from 2000 to 2009,” Juvenal and Petrella wrote. “That said, one cannot completely dismiss a role for speculation in the run-up of oil prices of the past decade. Speculative demand can and did exacerbate the boom-bust cycle in commodity prices. Ultimately, however, fundamentals continue to account for the long-run trend in oil prices.”

Fuel prices are currently at the highest level on record for the month of March, a phenomenon upon which presidential candidates are seizing to attack President Barack Obama on the issue at campaign stops. The financial reform bill Obama signed into law in 2010 allowed the CFTC to write its new rule, designed to curb price movements influenced by excessive speculation. The rule limits the size of the bets that individual traders can make on any given commodity.

The Dilemma

September 23, 2011

Natural Gas prices continue to be very competitive.

 

However…

 

This has presented a dilemma.

 

 

 

When you request pricing for an existing client,

 

Who has been participating in the deregulated market…

 

 

And

 

 

You compare the proposed price

 

vs

 

What the client has paid over the past 12 months.

 

 

Guess what???

 

 

 

The price normally is higher than what they have paid.

 

 

 

The client’s response normally is:

 

 

Why is it more?

 

 

Why can’t I play less?

 

 

 

That’s a good question,

 

 

 

Now what answer do you
want?

 

 

 

 

Let’s just stick to
the facts

 

 

 

The truth is that the natural gas market is a moving target

 

It is a commodity that is being traded 24/7

 

 

 

 

Several years ago (2008),

 

Natural gas prices shot up

 

 

Market prices were $12 – $14 a decatherm

 

Which translates into $1.20 – $1.40 a therm

 

 

That was the commodity cost to the providers

 

 

 

So consumers were even paying a higher rate

 

 

 

Since that time, prices have steadily dropped

 

 

 

You have probably seen me reference

 

That many analyst saw natural gas pricing

 

Reach a floor in

 

Late October / November 2010.

 

 

Problem is….

 

That nobody knows where the floor is…

 

 

Until you pass it

 

 

 

Well guess what??

 

 

Prices may once again be creating a floor as we speak.

 

 

The Nymex continues to drop

 

It has gone full circle over the last year

 

 

What do you mean the
last year?

 

 

It has gone full circle over the past 2 months

 

 

 

I have a friend, who
is a chiropractor,

 

He asked me what is
wrong with my neck.

 

 

I told him I have been
watching the Nymex!!!

 

 

 

The problem becomes….

 

 

There is more upside risk

 

Then there is downside risk.

 

 

Translated……

 

How much lower can prices go?

 

 

All future indications show prices going up

 

 

 

What are your options:

 

 

 

Float the market while prices continue to remain low

 

 

If you see prices starting to go up

 

You can always turn around and lock your position

 

 

There are various other options…

 

Winter locks…Lock in the price for months with the highest
usage

 

 

Basis locks….Lock in the transportation cost and float the
nymex

 

 

Anyone of these options can be used

 

To be proactive against future price spikes

 

 

 

 

Another issue:

 

 

 

We spoke in the past that natural gas prices

 

Are made up of 2 components

 

Nymex… The cost of natural gas out of the ground in Gulf of
Mexico

Basis…… The cost of transporting the gas from LA to your
local provider

 

Index…….The sum of the 2 or the base cost of the commodity
to the provider

 

 

While the Nymex prices are creating new floor space

 

The basis cost is higher than it should be

 

The result….

 

Adding a low Nymex cost

 

To a higher than normal basis cost

 

Gives you a higher overall cost

 

Then what you were paying over the last year

 

 

 

I find this all very
interesting…

 

(You have to say that
while you are rubbing your chin)

 

 

What should you do?

 

 

HBS presents all the options

 

 

We look at where the market has been

 

 

What are the future projections showing?

 

 

We look to educate our clients

 

So they have a full understanding of how the market works

 

 

We want our clients to feel comfortable

 

 

 

Knowing that they made the best decision

 

For their company

 

When all the facts were presented

 

 

 

To learn more about
deregulated energy opportunities for your business email george@hbsadvantage.com

 

Visit us on the web www.hutchinsonbusinesssolutions.com