Geopolitical risk spoils party again

Production will likely expand by 3 billion cubic feet per day compared to last year, the bank says, but that will leave inventories with just 3.45 trillion cubic feet of gas in storage by the end of October. In comparison, the five-year average for the final week of October is 3.848 tcf. Lower-than-expected production growth could even reduce supply levels through 2015, the bank says.  As producers see more profit in drilling oil, which has climbed close to $100 a barrel in recent weeks, the count of natural-gas drilling rigs could fall too low to maintain robust production growth, even as drilling becomes more efficient, the bank says.

Other risks include an unusually hot summer and reduced exports of natural gas from Canada. Front-month natural-gas prices recently traded up 1% at $4.407 a million British thermal units, with contracts for delivery in the spring and summer months holding between $4.40 and $4.50.  Any of the above factors "could change abruptly," catching the market off-guard, according to Citigroup. "Prices should incorporate these high probability risks." I totally agree! Citi is right on!

How about gold?

Kitco reports that, “All eyes in the gold market will be on the monthly U.S. jobs report due out Friday, as traders look to see whether the economic recovery is strong enough to alter perceptions of how quickly the Federal Reserve might tighten its monetary policy. Some say the market may not react either way as violently as it has in the past, since policy-makers are already thought to be fairly committed toward tapering their monthly bond-buying program known as quantitative easing. However, market players are also thinking about just how quickly the Fed might start to raise short-term interest rates, although this is not expected until next year. Expectations are for the March jobs report to show the strongest employment gains in several months.

“I don’t think the reaction will be as big as maybe some of the last ones we’ve had,” said Frank Lesh, broker and futures analyst with FuturePath Trading. “But in general, if you get a real strong number, I would expect that to be bearish gold.” And vice-versa, he continued. “Gold is still very sensitive to U.S. economic data…although it seems to me as if gold is sort of more accepting of the fact that tapering does continue. I don’t see as much concern in gold now that it’s started.”

Phil Flynn, senior market analyst with Price Futures Group, commented that Fed Chair Janet Yellen, earlier this week, seemingly tried to send a message that she remains dovish and rates will remain low for some time. Previously, she had come off as more hawkish in mid-March when she suggested that short-term rates could start to rise as early as six months after the end of quantitative easing.

“Having said that, the strength of the jobs market is one of the critical factors the Fed is going to look at to determine whether they should increase or decrease the pace of tapering and ultimately when interest rates should actually start to rise,” Flynn said. Thus, a “blockbuster number that knocks our socks off” is likely to hurt gold initially on ideas policy-makers might hike rates “sooner rather than later,” Flynn said. “On the other hand, if it’s a terrible report, it would probably get the market speculating that the time frame to start raising rates in 2015 could be even later….and if it’s bad enough, tapering could even slow. That would be more accommodative and would mean a weaker dollar and could get us a little bullish (in gold).” An as-expected report could mean some volatility both ways, with gold perhaps then resuming its uptrend, he added.

 

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About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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