Natural gas pulled back but it is obvious that this market is starting to attract a lot of interest! Reuter's and the CME Group reported that the natural gas futures open interest on the New York Mercantile Exchange (NYMEX) climbed to a record high on Monday for the 11th straight day. The total futures open interest, or the number of longs and shorts outstanding, climbed 18,496 contracts on Monday to a record 1,455,630. Futures open interest increased by more than 260,000 contracts, or a whopping 22%, on this recent run. Hedge funds have increased their net-long position in natural gas futures, options and swaps for the sixth straight week. That puts the hedge funds long about 387,686 contracts their largest net long position in three years.
Why all this interest in the long side of natural gas? Because the hedge funds realize that we are crossing that historic turning point in this market where demand growth expectations will start to outstrip production increases. This is usually a sign that a market has established a long term bottom. Demand growth is what is really driving this bottom and if there was a straight demand indicator, it would be wildly bullish.
Power generators obviously are seeing the tremendous benefits both economically and environmentally of sticking with natural gas instead of coal and in some cases, even nuclear. Factories have benefited from a stable cheap and clean source of energy. The industry is gearing up for even more demand in the future and almost a day does not go by that we don't hear another bullish demand story and the industry getting ready to take advantage of it.
In fact just yesterday Reuter's News reported that Phillips 66 plans to set up a 100,000-barrel-per-day natural gas liquids fractionator near its Sweeny refinery in Old Ocean, Texas to cater to the booming petro-chemical industry. They say that construction is expected to begin in the first half of 2014, with startup projected by the second half of 2015. Abundant supplies of shale gas have resulted in resurgence in the U.S. chemical industry, and several energy companies are building fractionators, or gas processing plants, to provide feedstock. The project will create more than 25 full-time jobs.
One of the keys for a lot of these bullish bets is the speculation that the U.S. will at some point allow the exports of not only our sudden abundance of natural gas but also our abundance of oil. In a must read in today's Wall Street Journal it is being reported that, "The U.S. energy industry is suddenly talking about something that was unthinkable a few years ago: Exporting crude oil. Congress largely barred such exports after the 1970s Arab oil embargo in a step to protect U.S. oil supplies. But with domestic production booming, energy-company executives are questioning whether the U.S. needs every drop of petroleum it extracts.”
The Journal says, "The U.S. does regularly grant permits to send some oil to Canadian refineries. The volumes — relatively small but growing — reached 21.9 million barrels in 2012, or an average of 60,000 barrels a day, up 27% from the year before and the highest level since 1999, according to the U.S. Energy Information Administration.
“The oil-exports debate could mirror the one the energy industry has had over the export of liquefied natural gas. Producers have been clamoring for U.S. government permission to sell such gas overseas, where prices are much higher than in the U.S.”