Friday, September 30, 2011

Musings: Is Capital Discipline Re-emerging in The Natural Gas Market?

The European financial turmoil is roiling global debt, equity and currency markets. These markets in turn are impacting commodity markets and creating significant near term volatility. There doesn't appear to be much direction evident in commodity markets other than their reaction to global events. Weekly changes in crude oil inventories and natural gas injection volumes keep prices bouncing around.

West Texas Intermediate crude oil seems to be bouncing between $80 and $90 per barrel, although a leading oil trader says the price action has established a pattern of lower highs and lower lows leading him to sell crude oil futures every time they rise and buy them when they fall until that trade doesn't work.

The picture for natural gas prices appears less clear. A larger than expected injection of natural gas into storage was reported the week before last while a smaller than anticipated injection last week has kept prices unsettled. Natural gas in storage remains below year ago levels and about in the middle of the five year range. The weekly volatility reflects changes in weather and perceptions of industrial demand trends.

Increased concerns about future economic growth, as highlighted by the International Monetary Fund's reduced forecasts for U.S. and global economic growth in 2011 and 2012. These reduced economic growth estimates suggest the key to any recovery in natural gas prices in the near term will depend on falling supply growth rather than a demand increase......Read the entire Musings article.

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