American Oil and Gas Reporter - June 2014 - 35

MARKETMATTERS
Vacillating Weather
Creates Unusual Challenges
For Natural Gas

"The balance of bullish and bearish
price factors is tilting higher, but
higher prices are not a sure thing. "

The natural gas industry faces unusual challenges this year. It
will be necessary to restore low inventories in an uncertain weather environment. There are also questions of where natural gas demand may be impacted. The balance of bullish and bearish price
factors is tilting higher, but higher prices are not a sure thing. A
warmer El Niño winter could put a top in place.
Last winter was notable for continuous cold, a rally in natuPrices fell from the $6.495 high on Feb.24 to $4.221 on April 2.
ral gas futures prices that breached $6.00, and the lowest level of
The low formed a "hammer" candlestick on a weekly chart (Figworking gas in storage in 11 years. The implications of these facure 1). A break of that low could cast doubt on a rally. The hamtors are bullish for price. Moreover, providing enough replacemer candlestick formation is a significant bullish reversal canment gas to bring storage to an acceptable
dlestick pattern that occurs mainly at the botlevel by the end of October, when the next FIGURE 1
tom of downtrends.
withdrawal season begins, should prove
On another front, The U.S. government
very challenging. Nonetheless, a rally had not
has issued an El Niño watch. Forecasters anHammer
developed at the time of writing (mid-May).
ticipate an unusually large El Niño because
The Energy Information Administration
of very warm waters developing in the
Little to No
has documented last winter's experience in
eastern tropical Pacific Ocean. One estimate
Upper
some detail. Natural gas storage withdrawals
puts the amount of water as large enough to
Shadow
between November and March were the
cover the United States 300 feet deep. As this
High Open
Close High
largest recorded by EIA statistics going
water surfaces and approaches North Amerback to 1994-95. Nearly 3 trillion cubic feet
ica, forecasters think 2015 could be the
Open
Close
of natural gas were taken from storage last
hottest year on record. El Niño is not a cerwinter. Typically, winter withdrawals total
tainty, but the Climate Prediction Center of
around 2 Tcf.
the National Weather Service indicates the
More than any particular event, inventolikelihood of El Niño increasing during the
Long Lower
ry management was complicated by the
remainder of 2014.
Shadow
extended period of cold. In Chicago, for exThis has serious implications for natural
ample, the months of December to March
gas pricing this summer and even into
Low
Low
were collectively the coldest on record. In2015. A warm summer could interfere with
dividually, however, EIA notes that Deefforts to refill storage and would support
cember, January, February and March "ranked as the 21st, 10th,
higher prices at that time. However, El Niño also suggests a warmer
ninth, and 19th coldest on record, respectively."
winter. Such a result would be bearish for gas prices.
Working natural gas in storage was only 826 billion cubic feet
The U.S. Naval Postgraduate School has outlined some imat the end of March. EIA projects storage at the end of October
plications of an El Niño. In general, one can expect cooler and
will reach 3.4 Tcf. This will require a record stock build of 2.6
wetter weather in the U.S. South, flooding in Southern CaliforTcf through this summer and fall. EIA expects lower demand from
nia, heavy precipitation in the Gulf States, and lower heating bills
the electric power sector and increasing natural gas production
in the northern United States. These effects are strongest in the
to enable such a large stock build.
winter. Moreover, the Atlantic hurricane season usually is lessEvents on the ground could, however, turn those expectations
ened and the tornado season is more active during El Niño. ❒
on their head. Early storage injections did not meet anticipations.
Injections began in the week ending on April 4. Through April,
cumulative injections totaled 163 Bcf. This was a 53 percent inALAN H. LEVINE is chief excrease, compared with the same period in 2013, according to EIA.
ecutive officer and chairman of
However, additions were only 8 percent above the 151 Bcf fivePowerhouse Inc. An internayear average for those weeks.
tionally recognized expert in enTotal lower-48 working inventories began the injection periergy pricing and business pracod well below the 2009-13 minimum of 1.716 Tcf. April 25 also
marked the latest point in the year that inventories had remained
tices, he has more than four
below 1.000 Tcf since 2003.
decades of experience as a peSome technicians view the natural gas price charts bullishly.
Transactions in securities futures, commodity and index futures, and options carry a degree of risk. Past
performance may not be indicative of future results. This column is for informational purposes only. It
does not represent an investment offer, solicitation or recommendation.

troleum specialist. He can be
reached at alan@powerhouseTL.com, or 202-333-5380.

JUNE 2014 35

American Oil and Gas Reporter - June 2014

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