Weekly Energy Market Watch | January 14, 2019

Jonathan Lee, Senior Energy Market Intelligence Manager at ENGIE Insight

MARKET COMMENTARY | For Week Ending 1/11
Natural gas mounts a late-week rally on colder temperature outlook.

Natural gas slid 10.0 cents lower to $2.944 per MMBtu on easing concerns over winter storage supplies as weekend weather forecasts offered little change, calling for milder temperatures to linger into the third week of January. Crude oil gained 56 cents to $48.52 per barrel after Saudi Arabia said it planned to slash production by 10% to 7.1 Mb per day. Equity markets extended recent gains on optimism a meeting between senior U.S. and Chinese officials could thaw trade relations.

The Feb-2019 NYMEX natural gas contract closed 2.3 cents higher at $2.967 even as temperature forecasts remained largely unchanged. Crude bounced $1.26 higher to $49.78 on continued support from Saudi Arabia’s pledge to cut production output by 800,000 barrels per day. Equities advanced on hopes the second day of trade talks between U.S. and Chinese officials would bear some fruit and ease tensions.

Natural gas gained 1.7 cents to settle at $2.984 ahead of Thursday’s storage report, which was expected to show a withdrawal that was well below historical norms and trim the deficit to the 5-year average by almost 100 Bcf. The Feb-2019 WTI crude contract jumped $2.58 higher to $52.36 on potential easing trade tensions between the U.S. and China and a 1.7-Million-barrel decline in oil inventories, as documented by the EIA in the weekly inventory report. Stocks posted their fourth day of gains on reports that the U.S. and China narrowed differences over trade.

Natural gas dipped 1.5 cents lower to $2.969 after the EIA reported a 91 Bcf draw from storage, which narrowed the deficit to the 5-year average by 96 Bcf to 464 Bcf. Crude managed to eke out a 23-cent gain to close at $52.59 despite downside pressure from a stronger greenback. Equity markets staged a late-session comeback even after another batch of disappointing Chinese economic data fueled concern over slowing global economic growth.

Natural gas jumped 13.0 cents to $3.099 as updated weather forecasts called for a return of below-normal temperatures in the Midwest and Northeast during the coming 8-14- day period. Crude oil gave back a buck to finish the week at $51.59 as traders cashed in on the 9-day rally. Equities were largely unchanged even after U.S. Treasury Secretary Steven Mnuchin said China’s Vice Premier Liu He would travel to the U.S. for trade negotiations.

Natural gas is likely to see volatility return as forecasts for colder temperatures in the major consuming regions bolster the heating demand outlook.

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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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