Bulls & Bears Go Head-to-Head

I had the privilege of hosting MXenergy’s Client Energy Series teleconference last Thursday which featured industry expert Michael S. Haig, Director and Senior Commodity Strategist for Societe Generale. The topic was this summer’s energy outlook which concluded that the Bulls and Bears have been going head to head for control of the US natural gas market due to mixed fundamental indicators.

Predictions of an active hurricane season bolstered this winter’s wholesale price of natural gas. Also, this week, the Energy Information Administration (EIA) released its short term energy outlook which was fundamentally bullish in nature. The report stated that there is a 1.3% probability that more than 100 million barrels of crude oil and 600 Bcf of gas will be disrupted by the storms which is similar to the impact of Katrina and Rita using the “Monte Carlo hurricane outage simulation.”

And unlike last year, they are projecting a 97.8% chance that the offshore Gulf will be affected by storms this hurricane season. On the contrary, Haig noted that since hurricanes Katrina and Rita in 2005, there have been significant technological improvements which have strengthened rigs and pipelines. Thus, gas production is unlikely to be disrupted as severely as it was in 2005 if the offshore Gulf takes several direct hits this year.

The other fundamental factors where sentiments differ are projections of the upcoming summer weather-related demand for gas-fired electricity generation, storage injections and inventories, crude oil prices, domestic production, Canadian and liquefied natural gas imports.

To show the impact of the mixed market, this week’s slight departure of 7 Bcf from the expected storage injection released by the EIA Thursday sent the wholesale natural gas market into a frenzy and prices reached a high of $7.825/MMBtu for the July prompt month, which is about 3%
higher than the previous day settle.