Record demand, record low temperatures and record production as the cold grips the nation and of course the natural gas. Natural gas (NYMEX:NGG14) rallied and broke as traders tried to assess the cold and new data from the Energy Information Administration. It seems that gasoline is spiking as cold causes some refinery problems and power outages. On top of that, we get weekly inventories from the EIA, which may be interesting if the American Petroleum Institute report is any guide.
I guess it wasn’t cold enough for natural gas to break out of its wedge and recent trading range. One reason may be the big picture on gas. The market seemed to break when the Energy Information Administration reported that gross natural gas production in the lower 48 states rose in October to a record high of 74.60 billion cubic feet per day, data from the U.S. Energy Information Administration as reported by Reuters. They said that lower 48 "wet" gas output rose 0.9% from the upwardly revised September output of 73.95 bcfd, the EIA said in its Monthly Natural Gas Gross Production Report. The EIA's previous estimate for September was 73.91 bcfd. The previous record was hit in August at 74.49 bcfd. The EIA says that “U.S. onshore natural gas production is expected to continue increasing over the next two years, with strong output growth in the Marcellus Shale offsetting production declines in the Gulf of Mexico. Overall U.S. natural gas production is expected to grow 2.1% this year and 1.3% in 2015.”
While production is at a record high, so is demand. Natural gas contracts for prompt delivery hit $99 a btu in New York from a normal price of around $20. The EIA said “Following a cold December and several large weekly withdrawals of stored natural gas, EIA is revising downward its estimate of the amount of U.S. natural gas held in storage at the end of the winter heating season by more than 200 billion cubic feet. EIA now expects inventories will total about 1.5 trillion cubic feet at the end of this March.”
Gasoline spiked to the highest level in two weeks as Bloomberg News reported that two weeks as frigid temperatures triggered shutdowns at refineries from New Jersey to Louisiana. Prices climbed for the first time in seven sessions. Instrument freezes, unit shutdowns and power losses were reported at refineries on the East Coast, Midwest and Gulf Coast representing 7.4% of U.S. processing capacity. Two sites, Marathon Petroleum Corp.’s Detroit plant and PBF Energy Inc.’s Paulsboro, New Jersey refinery, shut all or most units.
Yet in the big picture, the EIA seems to agree with my assessment that long term gasoline prices are in decline. The EIA says that gasoline prices are expected to trend downward over the next two years, averaging $3.46 per gallon in 2014 and $3.39 per gallon in 2015, driven down by continued growth in U.S. crude oil production and lower crude oil prices.”
Ah yes, crude production. The EIA says that EIA “expects annual U.S. crude oil production to come close to setting a new record high in 2015… Projected domestic crude oil production is set to increase by 1 million barrels per day this year to 8.5 million barrels per day, and then rise to 9.3 million barrels per day in 2015. U.S. oil production in 2015 could be the highest since 1972… The growth in domestic production has contributed to a significant decline in petroleum imports. The share of total U.S. liquid fuels consumption met by net imports is expected to decline to 24% in 2015, which would be the lowest level since 1970. Rising U.S. crude oil production will make a major contribution to the record 1.9 million barrel-per-day increase in global oil output expected from non-OPEC countries during 2014.”