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Market Summary: 28 Oct – 01 Nov 2013

The following is a summary of last week’s market activity and the market outlook:

  • NYMEX prices plummeted last week and yesterday, with most contracts hitting their all-time lows. The December ’13 contract dipped to $3.44 (a new low), the 12-Month Strip hit $3.57 (just above $3.55 from August low), and Calendars ’14, ’15 and ’16 hit $3.60, $3.83 and $3.98 respectively–all-time contract lows for each.
  • The price dips illustrate the market’s response to November weather turning mild, a bearish storage report last Thursday, shale gas and related pipeline activity (new record production > 66.5 Bcf/day), new production area pipeline capacity in the Marcellus/Utica region that frees supply, and the Spectra Energy New York-New Jersey pipeline coming online.
  • Last week the EIA reported an injection of 38 Bcf for the week ending Oct. 25. This was above expectations (33 Bcf), below last year (66 Bcf) and above the 5-year average (36 Bcf). Current inventory is 3,779 Bcf, which is only 3.1% below last year and now 1.6% above the 5-year average.
  • Lack of demand, confidence in ongoing supply growth and moderate near-term weather have prevailed over any bullish outlook and winter premiums are gone. While there is always a possibility of more downside, prices took a big dip last week and there is still tremendous ongoing winter risk–-especially in New England. In addition, coal-to-gas switching could dramatically pick up if prices reach the $3.25 to $3.00 range–especially in PJM and the Southeast.
  • Based on current NYMEX pricing, this is a great opportunity to take winter risk off the table for near-term purchases and capitalize on all-time lows for future contract terms.  Long-term fundamentals remain relatively bullish compared to near-term, due to EPA regulations, LNG exports and expected increases in industrial demand.