Growing supplies of natural gas from shale at falling prices (see “Gas or coal?” below) also have had a quick impact on the coal market as natural gas replaces less economic and less efficient coal-generating facilities, Chirichella notes. But substitution of cheap natural gas for gasoline, diesel and liquefied gas exports will be a slow process and be dependent on natural gas supplies still continuing to grow at the same pace as the last few years and prices for natural gas remaining flat, he adds.
Barring a severe winter or a major cut in production, natural gas supplies could continue to rise. “Even at lower prices, we have not seen a significant decline in gas production, as shale oil producers are producing natural gas as a byproduct. As long as oil prices are high enough to make shale oil production profitable, we probably will see natural gas supplies increase,” Zarembski says.
Natural gas will continue to be a promising investment in the future, but in the near-term, Patton says, don’t expect good results. “If you start building toward the summer season, that’s normally a tough time for natural gas investors anyway,” he says. “I’d just want to be out of the way on natural gas.”
Gasoline and heating oil are seeing inventory levels begin to increase after running tight for most of 2012, Zarembski adds. Profitable crack spreads for some producers are keeping refinery utilization near 90% currently. “So as long as it is profitable, we should see this trend continue,” he says.
Some decline in energy market trading volatility also had been seen in recent months as oil is well-supplied and demand growth has been slow. “We have a stalemate between ample production and stagnant demand vs. the potential for supply disruptions,” Zarembski says.
Crude oil has seemed to have less volatility on a 30-day rolling average than in past times, notes Patton. “We saw a very large volatile trend through the summer months, and since then the average daily move really has contracted. You have seen one or two days where you saw significant spikes. You saw one in November and one or two in October, but for the most part volatility in the crude oil market really has settled down. “
In oil’s case, there may be “a bit more volatility” post-fiscal cliff and slightly higher prices as well, Meir says. “But the upside will be kept a little bit in check because the fundamentals still look very, very comfortable. There is no shortage.”
The bottom line appears to be that despite supply enhancements and demand challenges, fiscal and geopolitical uncertainty likely will prevent a major move in energy markets in the first half of 2013.