Energy Market Outlook – August 8, 2018


Author: Jason Scarbrough

Is the Market Starting to Come Back to Life?

The EIA finally adjusts the end of season storage number lower to 3.342 TCF heading into winter. Something Choice Energy Services has been banging the table on for months – the markets are focusing far too much on production and ignoring the consumption we contend, which has been increasing at a more rapid pace than production. The end of injection season projection is 17% below the 5 year high and 13% below the 5 year average of 3.835 TCF, and they still could be a bit high on their projection.

El Nino is the saving grace for low natural gas prices this winter – the NOAA shows a 70% chance of El Nino developing by winter (65% chance this fall). This would keep temps mild for the northern latitudes in the US where we typically see the majority of the heating demand. How will all of this new demand affect the supply levels in the fall with an El Nino?  What if there is a frigid winter – where will prices get to? Will nat gas volatility come back to the market? The odds of this all coming up bullish and prices skyrocketing all at once are pretty low, but we contend that the risks are a reality and a bullish catalyst like we are seeing the first meaningful domino falling; these are risks that energy end users should be preparing for with their hedging strategies.

In addition, 2019 projections continue to be based on natural gas demand that CES sees as being extremely underestimated at this time. Namely exports, which we contend could be as much as 50-75% higher than the increase of current EIA projections of 3.39 BCF/day.