Weekly Energy Market Watch | December 10, 2018

Jonathan Lee, Senior Energy Market Intelligence Manager at ENGIE Insight

MARKET COMMENTARY | For Week Ending 12/7
Natural gas settles lower on milder temperature forecast.

Natural gas plummeted 27.3 cents to close at $4.339 per MMBtu as weekend weather forecasts showed a moderation in temperatures following the week’s cold. Crude oil jumped $2.02 to $52.95 per barrel after OPEC and Russia agreed to extend cuts through the end of next year, while not yet specifying the exact amounts. Equity markets moved higher after the U.S. and China agreed to a temporary truce on the trade war to allow negotiations to move forward.

The Jan-2019 NYMEX natural gas contract rebounded 11.8 cents to $4.457 as traders shifted their attention back to the cold spell that was expected to cover much of the nation during the week and increase residential/commercial heating demand. Crude oil gained 30 cents to $53.25 on news Canada, the world’s 4th largest oil producer, will reduce output by 8.7% next year. Stocks suffered major losses on the lack of specific concessions in the U.S.-China trade talks and some disparity in the two nations’ official statements.

Natural gas inched 1.2 cents higher to $4.469 in a light-volume trading session ahead of Friday’s storage report release, which was expected to show a draw around 60 Bcf and would be in line with the 5-year average draw. Crude oil edged 36 cents lower to $52.89 ahead of the following day’s inventory report. The stock and interest rate markets were closed to honor the life of late President George H.W. Bush.

Natural gas slipped 14.2 cents lower to $4.327 as updated weather forecasts pointed to a broad-based warming trend in the 8-14-day window, extending out to December 20th. Crude oil retreated $1.40 to settle at $51.49 even after the EIA reported a 7.3 Mb drop in oil inventories, the first decline in 11 weeks, as OPEC delayed a production cut decision until later in the week. Equities fell on fears Chinese-U.S. trade relations would further deteriorate after the arrest of Huawei Technologies’ CFO in Canada.

Natural gas rebounded 16.1 cents to $4.488 after the EIA reported a 63 Bcf withdrawal from storage, which was mostly in line with expectations, but also further widened the storage deficit. Crude prices climbed $1.12 to $52.61 after OPEC members agreed to slash oil output by 800,000 barrels a day beginning in January. Stocks continued to slide following a jobs report miss and ongoing trade concerns between the U.S. and China.

Natural gas will continue to see increased sensitivity to cold weather forecasts as the storage deficit remains stubbornly high.

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  • André D. Henderson, Sr.

    Do we expect fluctuations between $4 and $5?

    And what needs to occur for gas to fall below $4?

    • Jonathan Lee, Senior Energy Market Intelligence Manager at ENGIE Insight

      Thanks for your question Andre. It will likely operate between this range throughout much of winter with the potential for short-lived jumps above $5 depending on the severity and length of cold shots. For natural gas to fall below $4 and into the mid-$3 range, it’ll take a prolonged moderation in temperatures, continued near-record production, and a solid narrowing of the storage deficit.

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