Thursday, August 27, 2009

Weekly Gas Report

The Energy Information Administration released its weekly natural gas report today and things are, well, not greatly improved.  Storage levels are going up and prices are going down.  But neither of these is unexpected.

The weekly injection into gas storage was 56 Bcf, which was 4 Bcf more than last week.  But since this is the "injection season," the weekly number was actually lower than the five year average number for this time of year (67 Bcf) and quite a bit lower than this week last year (100 Bcf).  The current storage level of is about seven weeks ahead of the five year average and is on track to break the record of 3,565 Bcf set in late October 2007.  As the chart below shows, storage is especially high in the producing regions (+33.5% over five year average) compared to the East Region (+9.7% over five year average) where much consumption takes place.

The second half of October and the return of cold weather marks the end of the injection season, so hold on tight for a bumpy ride until then.

Pricing continues to suck wind.  The spot and near month futures prices both fell below $3.00 last week and don't seem to be in a hurry to go back up.  As noted before, the spread between oil and gas prices on a per Btu basis continues its wide divergence (watch the dotted black line on the chart below continue to flutter away - in a perfect world it should be close to the red and blue lines).  This divergence is causing tongues to wag in investment circles as everyone tries to formulate an investment to play the spread.  As I've noted before, they are similar fuels but don't trade on similar fundamentals at this point, so while gas prices will eventually move higher and oil prices might sink, there really isn't a fundamenal arbitrage play here.  Not that I'm offering investment advice.  The best advice I can offer is not to listen to me. 

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