Natural Gas and Oil Prices Have Become Unpredictable

Oil is getting demolished after inventories unexpectedly swell

From an Article by Seth Archer, Market Insider, June 7, 2017

Oil prices are falling fast after data released by the Energy Information Administration showed an unexpected inventory build.

“U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.3 million barrels from the previous week,” the weekly report said. Investors expected a reduction of 3.137 million barrels, according to data from Bloomberg.

Markets are responding by sending oil prices into a tailspin. The price of West Texas Intermediate is down more than 4% Wednesday, and Brent is down more than 3.5%.

This is only the last event in a string of news that has been sending oil lower.

Last week, OPEC countries announced they would be cutting production through 2018, but not as much as investors had hoped. Later in the week, Gulf States cut diplomatic ties with Qatar in part because of differing opinions on the future of the region and “gross violations” committed by Qatari officials. After seeing an initial bounce, energy prices turned lower.

In addition, President Trump announced he would be withdrawing the US from the Paris Climate Accord, causing oil to fall by about 1.2%.

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NATURAL GAS (HENRY HUB)

Natural gas is one of the most important sources of energy of our time. The odorless and colorless gas is used in industries and households as a fossil fuel. Natural gas is often used as heating gas in private households or commercial premises. It is also increasingly used to fuel passenger cars. In industry, natural gas is required as a process heat energy carrier in electronic heat generation. The alternative name for natural gas, “Henry Hub”, originates from the gas pipeline with the same name which runs through Erath, Louisiana. This pipeline has great influence on the price for natural gas futures, which are traded on the world’s largest commodity futures exchange, the New York Mercantile Exchange (NYMEX).

Since June 2007, the Henry Hub Pipeline has also been connected to four other domestic pipelines and nine other international ones. The price of natural gas also depends to a large extent on the price of oil.

EIA Overview:
(For the Week Ending Wednesday, June 7, 2017)

Natural gas spot prices fell at most locations this report week (Wednesday, May 31 to Wednesday, June 7). The Henry Hub spot price fell from $3.00 per million British thermal units (MMBtu) last Wednesday to $2.99/MMBtu yesterday.

At the New York Mercantile Exchange (Nymex), the July 2017 contract price fell 5¢ from $3.071/MMBtu last Wednesday to $3.020/MMBtu yesterday.

Net injections to working gas totaled 106 billion cubic feet (Bcf) for the week ending June 2. Working natural gas stocks are 2,631 Bcf, which is 11% less than the year-ago level and 10% more than the five-year (2012–16) average for this week.

The natural gas plant liquids composite price at Mont Belvieu, Texas, fell by 34¢, averaging $5.83/MMBtu for the week ending June 7. Spot prices for natural gasoline, ethane, propane, butane, and isobutane all fell, by 4%, 5%, 7%, 6%, and 6%, respectively.

According to Baker Hughes, for the week ending Friday, June 2, the natural gas rig count decreased by 3 to 182. The number of oil-directed rigs rose by 11 to 733. The total rig count increased by 8, and it now stands at 916.