Musings: Imagining The Future for The Natural Gas Industry

A week ago Monday, the December natural gas futures contract traded on the CME exchange closed out its existence at $3.36 per thousand cubic feet of gas (Mcf), down $0.18 from the closing price of $3.54/Mcf posted the previous trading day, which happened to be the Friday after Thanksgiving and a notoriously light trading day. Natural gas prices had been buoyed in the period immediately before Thanksgiving by expectations that colder than normal weather over large parts of the gas consuming areas of the country would hike demand.

Futures prices were higher despite large and growing natural gas storage volumes. On that last trading day, cold weather prospects had shifted in favor of expectations for warmer than anticipated temperatures and thus depressed gas demand. The price drop, one of the largest daily corrections in a long time, brought further pain to industry participants. But as one private equity investor very active in the upstream oil and gas business put it, "It's got to change!" Yes, it will. The problem is that it could get worse!

The price drop, one of the largest daily corrections in a long time, brought further pain to industry participants

We've been spending considerable time wrestling with trying to define the natural gas industry's outlook as it is very important for this country's economy and for those people who are actively engaged in the business. Could it get worse? Can it get better? Current industry conditions reflect a certain Jekyll and Hyde quality, activity is up and growing but the price for the product is low and falling. What would it take for natural gas prices to recover? Would those actions help or hurt future industry activity?

Beyond those immediate concerns, we are wrestling with what the next phase for the industry might look like? How will the industry change as it transitions from its current state to whatever that next phase is? Will natural gas play an even greater role in our nation's power generation business? Can natural gas power a meaningful segment of our future car and truck fleet? Will the U.S. remain a natural gas importer or become a significant gas exporter?

These and many other questions have been filling our head and dominating our discussions with people in the business. To try to make sense of what is happening now, but more importantly what might happen in the future, we felt we needed to step back and take a very high level perspective of the business and current trends. It meant we needed to get away from the trees that restrict our view of the forest. (It will take several articles to examine these issues and attempt to define how the future might unfold.)

So far this year, it becomes clear we have experienced two distinctly different outlooks for the industry.

When we look at a chart of the price of the near month natural gas futures contract (Exhibit 1) so far this year, it becomes clear we have experienced two distinctly different outlooks for the industry. One was predicated on optimism about a growing economic recovery coupled with anticipation for falling natural gas production. The other view was marked by a weak economy with a potential for it getting worse given global economic and credit market uncertainties, coupled with growing frustration over continuing production growth despite weak natural gas prices.......Read the entire "Musings From The Oil Patch" article


Is This December Similar to 2007 & 2008 for Gold & Stocks?

Gold Bulls Take The Advantage Going Into Thursday

Gold [February contract] closed higher on Wednesday and the high range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term.

If February extends the rally off November's low, November's high crossing at 1806.60 is the next upside target. Closes below November's low crossing at 1670.50 would renew the decline off November's high.

First resistance is last Friday's high crossing at 1767.10. Second resistance is November's high crossing at 1806.60. First support is November's low crossing at 1670.50. Second support is the reaction low crossing at 1607.30.



Gold’s 4th Wave Consolidation Nears Completion and Breakout

Is this the top for Crude Oil?

Crude oil closed lower on Wednesday as it consolidates some of the rally off the November 25th low. The low range close sets the stage for a steady to lower opening on Thursday. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term.

If January renews the rally off October's low, the 75% retracement level of the May-October decline crossing at 105.42 is the next upside target. Closes below the reaction low crossing at 94.99 are needed to confirm that a short term top has been posted.

First resistance is the 75% retracement level of the May-October decline crossing at 105.42. Second resistance is the 87% retracement level of the May-October decline crossing at 110.46. First support is the reaction low crossing at 94.99. Second support is the reaction low crossing at 89.05.


Gold’s 4th Wave Consolidation Nears Completion and Breakout

Gold and Crude Oil Trend Analysis

With a Chart Analysis Score of -50, gold is stuck in a trading range. Despite the move up and pullback in gold last week, it did not change the status of our weekly Trade Triangle. We remain positive on this market longer term and expect we will see it move much higher in 2012 as inflation kicks in around the world. Long term traders should remain positive for this precious metal. Intermediate term traders should be out of this market at the moment and on the sidelines waiting for a buy signal with the weekly Trade Triangle.

BIG PICTURE   Trading Range
Monthly trade triangles for Long term trends = Bullish
weekly trade triangles for intermediate term trends = Bearish
daily trade triangles for short term trends = Bearish
Combined Strength of Trend Score = -50

The $101.75 area basis the January contract appears to be offering resistance for crude oil at the present time. Crude oil remains the shining star of the commodity world and has become the currency of choice. With all of our Trade Triangles green, giving us a +90 Chart analysis score, it would appear as though we are in a strong bullish trend. At the present time all our Trade Triangles remain in a positive mode which is the direction of the major long term trend. Major resistance remains between the $102 and $103 levels. Long term, and intermediate term traders should be long this market with appropriate money management stops.

BIG PICTURE Strong Trend Bullish
Monthly Trade Triangles for Long Term Trends = Bullish
Weekly Trade Triangles for Intermediate Term Trends = Bullish
Daily Trade Triangles for Short Term Trends = Bullish

Combined Strength of Trend Score = +90

HOW TO USE THE MARKETCLUB SCORING SYSTEM
Score: 50 – 65 Trading Range
Score: 70 – 80 Emerging Trend
Score: 85 – 100 Strong Trend


Gold’s 4th Wave Consolidation Nears Completion and Breakout

Crude Oil Bulls Take The Advantage Into Wednesday Trading

Crude oil closed higher on Tuesday as it extends the rally off the November 25th low. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If January renews the rally off October's low, the 75% retracement level of the May-October decline crossing at 105.42 is the next upside target. Closes below the reaction low crossing at 94.99 are needed to confirm that a short term top has been posted. First resistance is the 75% retracement level of the May-October decline crossing at 105.42. Second resistance is the 87% retracement level of the May-October decline crossing at 110.46. First support is the reaction low crossing at 94.99. Second support is the reaction low crossing at 89.05.

Gold closed slightly higher on Tuesday as it consolidated some of Monday's decline. The high range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term. If February extends the rally off November's low, November's high crossing at 1806.60 is the next upside target. Closes below November's low crossing at 1670.50 would renew the decline off November's high. First resistance is last Friday's high crossing at 1767.10. Second resistance is November's high crossing at 1806.60. First support is November's low crossing at 1670.50. Second support is the reaction low crossing at 1607.30.

Natural gas closed higher due to short covering on Tuesday but not before spiking to a new contract low. Stochastics and the RSI are diverging but are turning bearish signaling that sideways to lower prices are possible near term. If January extends this year's decline, monthly support crossing at 3.225 is the next downside target. Closes above the reaction high crossing at 3.720 are needed to confirm that a short term low has been posted. First resistance is the reaction high crossing at 3.720. Second resistance is the reaction high crossing at 4.095. First support is today's low crossing at 3.405. Second support is monthly support crossing at 3.225.

Gold’s 4th Wave Consolidation Nears Completion and Breakout

WTI and Brent Price Spread Narrows

Between October and November, the spot price of West Texas Intermediate (WTI) crude oil increased $23 per barrel partly on signs that transportation constraints out of the U.S. Midwest, the main market for WTI, are beginning to ease. At the same time, the price of European benchmark Brent crude oil was up much less, only about $7 per barrel. As a result, the WTI-Brent crude oil price difference has narrowed. The WTI-Brent crude oil price difference was smaller earlier in the year. While the WTI-Brent oil price narrowed, gasoline prices continue to track the price of Brent as they have for much of the year. The average price for gasoline moved about 6 cents a gallon from early October through mid November and then fell 13 cents during the last two weeks of November.

Source: U.S. Energy Information Administration, based on Bloomberg.  

Gold’s 4th Wave Consolidation Nears Completion and Breakout

Gold’s 4th Wave Consolidation Nears Completion and Breakout

Back in August with Gold running to parabolic wave 3 sentiment induced highs, I warned of a major top and multi month correction.  We all know that the fundamentals for the shiny metal are stronger than ever, but you must keep in mind that the market prices all that in well l in advance.  Coupled with excessively bullish sentiment that was capped off by a USA Today cover with Gold on it, it was easy to see a major sentiment correction and therefore price decline was at hand.

If we fast forward a few months from my then blasphemous call for a top and multi month consolidation, we can see that Gold has lost favor with the taxi driving crowd and the shoe shine group both.  What has in fact happened is we have had what I call a 4^th wave triangle pattern, which works to consolidate prior gains. Triangle simple let the economics of the underlying security or commodity catch up with the prior bullish price action.  In this case, Gold was in a powerful wave 3 stage advance from the October 2008 $681 lows and over a 34 Fibonacci month period of time.  When everyone on the stage was convinced this act would continue, it was time for the curtains to draw.

The 4^th wave so far has been characterized by a typical pullback in terms of price and also time.  The drop to the $1530’s is a normal 31% Fibonacci retracement of the entire 34 month advance.  In addition, the pattern that has clearly emerged lines up as a typical 4^thwave triangle pattern, which has 5 total waves within.  Waves 1, 3, and 5 are down and 2 and 4 are up.  We are currently finishing wave 4 to the upside from the low $1600’s and likely to see a wave 5 near term to the downside.  As long as Gold holds above $1681 levels, I expect we will see a breakout north of $1775 to confirm that wave 5 up in Gold has begun.

Targets for the 5^th and final wave of this suspected 13 year cycle of Gold begin at $2360 and then we will update from there.  Below is the chart I sent to my paying subscribers last Thursday and we can see that this pattern is still playing out.  Aggressive investors would be wise to get long the metal on this final pullback, with a stop below 1680 to be conservative.

If you would like to have forecasts for price and pivot points in advance on the SP 500, Gold, and Silver that keep you on the right side of the markets, check us out at Market Trend Forecast.com

David Banister

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Hyundai, Samsung May Jump 80% on Demand for Oil Drilling Ships, Mirae Says

South Korean shipbuilding stocks may jump as much as 80 percent in four months as they catch up with gains in oil prices, according to Mirae Asset Securities Co., an affiliate of the nation’s second largest money manager.

The Korea KRX Shipbuilding Index (KRXSHIP), which tracks Hyundai Heavy Industries Co., Samsung Heavy Industries Co. and eight other shipbuilding stocks, may rebound as rising oil prices spur demand for drill ships and liquefied natural gas tankers, said Lee Sokje, a Seoul based Mirae analyst. The index has tumbled 42 percent since reaching the highest this year on May 2.

“Looking at how oil prices are doing, it’s only a matter of time before shipyard shares follow,” Lee said by phone on Dec. 2. “This is a very good opportunity to buy.”

Brent crude, the benchmark used to price two-thirds of global oil supplies, has jumped about 9.8 percent since Oct. 4 because of easing economic concerns and political tensions in Iran. The price may rise to $127.50 a barrel at the end of next year as the global economy avoids recession, Goldman Sachs Group Inc. said in a Dec. 1 report. It traded at $109.60 Dec. 2..... Read the entire article.


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Crude Oil, Gold and Natural Gas Market Commentary For Saturday Dec. 3rd

Crude oil closed higher on Friday as it extends this week's rally. The mid range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. If January renews the rally off this month's low, the 75% retracement level of the May-October decline crossing at 105.42 is the next upside target. Closes below last Friday's low crossing at 94.99 are needed to confirm that a short term top has been posted. First resistance is the 75% retracement level of the May-October decline crossing at 105.42. Second resistance is the 87% retracement level of the May-October decline crossing at 110.46. First support is last Friday's low crossing at 94.99. Second support is the reaction low crossing at 89.05.

Gold closed higher on Friday as it extended this week's rally. The mid range close sets the stage for a steady opening on Monday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If February extends this week's rally, November's high crossing at 1806.60 is the next upside target. Closes below last week's low crossing at 1670.50 would renew the decline off this month's high. First resistance is today's high crossing at 1767.10. Second resistance is November's high crossing at 1806.60. First support is last week's low crossing at 1670.50. Second support is the reaction low crossing at 1607.30.

Natural gas closed lower on Friday as it extends the trading range of the past two weeks. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. Closes above Monday's high crossing at 3.720 are needed to confirm that a short term low has been posted. If January renews this year's decline, monthly support crossing at 3.225 is the next downside target. First resistance is Monday's high crossing at 3.720. Second resistance is the 25% retracement level of the June-November decline crossing at 3.936. First support is last week's low crossing at 3.461. Second support is monthly support crossing at 3.225.

The Currency War Big Picture Analysis for Gold, Silver & Stocks

Spot Natural Gas Prices Dipped to Two Year Low in November

Spot natural gas prices at the Henry Hub in Erath, Louisiana fell to $2.83 per million British thermal units for delivery on November 24, 2011, the lowest price since November 17, 2009. Henry Hub is the benchmark location for key natural gas financial instruments on the New York Mercantile Exchange and the IntercontinentalExchange such as futures contracts, swaps, and options.
Key factors affecting natural gas prices include:

• Growing domestic production. U.S. domestic marketed production averaged 65.4 Bcf/d through September, based on EIA data, an increase of about 7% from the same period in 2010, while demand for the corresponding period was up 2% this year.
• High natural gas storage levels. For the week ending November 25, 2011, natural gas storage inventories were 3,851 billion cubic feet (Bcf), down one Bcf from record inventory levels set the prior week but over 7% above the five-year average.
• Seasonal weather. Warmer-than-average weather across most of the United States has delayed the start of winter weather and the corresponding increased natural gas demand for heating. Through November 28, cumulative U.S. population-weighted heating degree-days in the 2011-2012 winter season are 8% below the 30-year average and are down 16% in the natural gas heating-intensive Northeast region.

Spot prices at Henry Hub rose about $0.70 per million British thermal units after the Thanksgiving Holiday weekend due to cooler temperatures and higher demand.

Source: U.S. Energy Information Administration, based on Bloomberg.
Note: Data included through November 30, 2011.

  

The Currency War Big Picture Analysis for Gold, Silver & Stocks