Natural gas pops on a last blast of snow and cold at the end of April. A nor’easter seemed to give natural gas bulls hope that perhaps a bottom may be in for natural gas or perhaps it is just a snow job. As tempting as it might be to believe in a bottom, the truth is that it's unlikely that this last blast of winter can offer any real long-term support to the natural gas market. Despite the fact that the storm dumped as much as 10 inches of snow in some cities and knocked out power in others it is still too little too late to save this poor market.
You see, the problem is that natural gas supply should continue to exceed demand as liquid fuels continue to subsidize a collapsing natural gas price. Consider the report from the Energy Information Agency that showed that new well starts in the Eagle Ford region in Texas increased 110% from January through March 2012 compared to the same period in 2011, according to reporting and analysis by BENTEK Energy LLC (Bentek). The report showed that operators started drilling 856 new wells in January through March 2012, compared to 407 in January through March 2011. In early April 2012, the Eagle Ford active rig count set a new high of 217 units. The increased drilling and rig deployment translated into higher crude oil and condensate production, which is projected to average over 500 thousand barrels per day in April, up from 82 thousand barrels per day in April 2011.
Eagle Ford rigs hit a record high in April and they are producing a whopping 2 billion cubic feet of gas a day and they show no sign of slowing production. That is because they can get crude oil cheap not to mention other wet, natural gas resources.
Oil prices got hit on economic concerns from China to Europe. Spain had another bad bond auction as their yields hit the highest level since January. Yet oil is showing resilience as Iran is still a reason to not get too bearish. Iran has been hit with a cyber-attack that is infecting their computers and is being hit with a proposal from Obama to hit Syria and Iran with new sanctions. The AFP reported that Iran warned that new U.S. sanctions targeting its access to surveillance technology were "negative" and could "adversely affect its crucial talks next month with world powers over Tehran's nuclear program”.
That is despite that fact that global inventories are bulging. Iran has tankers filled with crude that no one is buying. Even China purchases of Iranian crude has fallen 54% below year ago levels.
Bloomberg News reported that, "Global oil inventories will increase “sharply” in the first half of the year, putting pressure on prices, unless OPEC cuts production, according to the Centre for Global Energy Studies." Stockpiles rose by 1.3 million barrels a day in the first three months of the year as output increased, marking the “first significant quarterly stock build since 2008,” the London-based center said in an e-mailed report. The Organization of Petroleum Exporting Countries may need to cut supplies by 1.5 million barrels a day by the end of year to support prices at $100 a barrel, CGES said.”
Iraqi production is soaring. Penn Energy reports that Iraq is building more export terminals. "The work and tests of the second floating oil terminal have been completed and it is ready to start loading within the coming 24 hours," one source from South Oil Company told Reuters on Thursday. In an effort to encourage greater oil production, Iraq initiated a plan to construct four new offshore oil transportation terminals along the narrow strip of coast in the southeast of the country. Eventually, each platform would be capable of shipping as much as 850,000 barrels per day each, or 3.4 million barrels per day in total. Reuters reports that the southern oil fields in Iraq are expected to increase production by around 600,000 barrels per day over the course the year.