New storm potential for natural gas

Beyond The Risk

Brent crude ((NYMEX:SCU14)) month hit a 9-month low as oil looks beyond the geopolitical risk into a well-supplied market.

Production is up in Iraq, it is up in Libya and up in the United States. The only thing that is not up is oil demand expectations. As we head ever closer to the shoulder season a sense of demand weakness continues to grow.

The International Energy Agency (IEA) last month revised down its forecast for growth in China's oil demand in 2014 to 3.3%, while weak German business sentiment data released today plays into that weakening demand sensibility. Germany's ZEW index for August fell to 8.6 points down from 27.1 in July. In fact based off the strength in the U.S. stock market the U.S. demand should be a bit better and is another reason why the Brent versus WTI spread is starting to come in.

We also are seeing a shift in products demand globally. This year for the first time in many we are seeing growth in global gasoline consumption is outpacing diesel growth. This is in part due to weaker than expected demand in China, India and Brazil.

Natural Gas (NYMEX:NGU14) regained the $4.00 for the first time since July 17 in the September contract. Some of the run up was on weather. Dow Jones said that "Traders showed a mixed opinion on what was ultimately a mixed weather forecast, analysts said. While forecasts do show some of the strongest heat of the summer, they also show unseasonably cool weather in the immediate few days and a cold front from Canada pushing back into view late next week." But also a new tropical storm potential in the Atlantic.

The National Hurricane Center says that shower activity remains limited in association with a broad area of low pressure centered about 500 miles west-southwest of the Cape Verde Islands. Little development is expected during the next couple of days due to the system moving through a dry and stable atmosphere over marginally warm waters.

After that time, environmental conditions could become more conducive for some development over the western tropical Atlantic Ocean while the system moves westward or west-northwestward at 15 to 20 mph. Or maybe it is because the refill season is quickly coming to a close and supply is still well below the five-year average.

In China Dow Jones reports that China will pass on some of the higher costs of natural gas to consumers, but again excluded residential users in its first price increase in more than a year. The move comes as the country aims to eliminate overcapacity in industries that rely heavily on cheap natural gas and as Beijing slowly loosens its grip on energy prices to accelerate the development of unconventional resources such as shale and coal-bed methane gas.

China's Natural Development and Reform Commission, its top economic-planning agency, said Tuesday that it would raise the government-set wholesale price of natural gas by as much as 0.4 yuan (6 U.S. cents) per cubic meter from Sept. 1.

China divides natural gas sold to nonresidential users into two categories. The first, known as existing reserves, is based on the volume of natural gas consumed in 2012. The second, known as incremental reserves, is the volume of gas consumed above that level.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.