Weekly Energy Market Update July 22, 2013

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Weekly Energy Market Update video for July 22, 2013. 

The following is a summary of last week’s market activity and the market outlook:

  • Natural gas moved higher this week due to a bullish storage report on Thursday and extreme summer heat in the Northeast. The Prompt Month moved 19 cents higher on Thursday and broke a 3-week range by closing above $3.80 for the first time since June 20, as well as above the range ($3.56–$3.77) during that time. Spot gas and power prices in the Northeast also saw significant volatility due to increased demand, while long-term prices remain stagnant.
  • Last week the EIA reported an injection of 58 Bcf, which was below expectations (65 Bcf), above last year (+29) and below the 5-year average (70 Bcf). Inventory through July 12 is 2,745 Bcf, which is 414 Bcf (13.1%) below last year and 29 Bcf (1.2%) below the 5-year average.
  • Gas production levels remain strong. At 65.8 Bcf/day, production is up 3.1% versus a year ago and production efficiencies continue to surprise. Net gas imports remain low due to reduced Canadian and LNG imports, and growing U.S. exports to Mexico.
  • Last week’s rally confirms price support above $3.50 but a test of $4.00 would seem to require strong sustained heat, which is not in the current forecast. Summer weather and natural gas storage remain key short-term prices drivers. More downside is possible, but price support should eventually come if sustained lower prices stimulate demand (coal-to-gas switching) and suppress supply (shale cutbacks).
  • We do not expect a repeat of 2012. Most price outlooks are in the $3.50–$4.50 range through the 2014-15 delivery year, so being near the bottom of the range may be strong value. Long-term price strength comes from LNG exports, EPA regulations and industrial demand, with upside limited by shale reserves.

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