Suez Weekly Market Monitor
ERCOT prices synced with the natural gas market as it followed its volatile trend.
Northeast power curves saw the same volatile action as the NYMEX and ERCOT with early week gains, late week losses and a closing rally.
PJM power prices in the east and the west moved in tandem as natural gas results drove the markets up and down.
Natural Gas Market
Natural gas was very volatile last week. Prices increased in the early part of the week only to fall off and rally again.
Natural Gas Storage: Gas in Storage Increased 5 Bcf
Working gas in storage was 3,450 Bcf as of Friday, November 10, 2006, according to EIA estimates. This represents a net increase of 5 Bcf from the previous week. Stocks were 176 Bcf higher than last year at this time and 238 Bcf above the 5-year average of 3,212 Bcf. In the East Region, stocks were 64 Bcf above the 5-year average following net withdrawals of 4 Bcf. Stocks in the Producing Region were 116 Bcf above the 5-year average of 899 Bcf after a net injection of 5 Bcf. Stocks in the West Region were 59 Bcf above the 5-year average after a net addition of 4 Bcf. At 3,450 Bcf, total working gas is above the 5-year historical range.
Soft Energy Prices May Be Costly Later
Stock-market investors love cheap energy. They may be setting themselves up for a heartbreak.
Energy prices have fallen recently, but there is a good chance that steadily rising world demand and lingering risks to supply could push prices for crude oil and related commodities back up, driving stocks down. Even now, prices aren't as low as they may seem. Despite a recent pullback that has left crudeoil futures more than 20% off their summer highs, at $59.59 a barrel on the New York Mercantile Exchange, prices are off just 2.4% this year.
Lower energy costs got much credit for last month's stock-market rally, which propelled the Dow Jones Industrial Average to record highs. Last week, key energy prices were mixed, and stocks rose 1%, reaching another record Wednesday.
Energy prices have been driven lower by rising oil and natural-gas inventories, mixed economic data and statements by U.S. Federal Reserve policy makers portraying a gradual slowdown in economic growth. Investors concluded that slower economic growth would reduce demand for oil and natural gas.
“Arguably, energy was the biggest factor behind the rally,” says Stephen P. Wood, a strategist at the asset-management firm Russell Investment Group. He figures big-name stocks in the Dow industrials and the S&P 500 are poised to continue rising in the near future. “The energy sell off gave people confidence that inflation was in check and the Fed would stay on the sidelines,” he adds.
While many analysts think energy prices will remain relatively soft into the start of next year, the longerterm outlook is less certain, given that both the stock and energy markets could be at turning points.
Many stock strategists hope that, for now, relatively low heating bills and gasoline prices would soften any blow dealt by housing-price declines, which cut into many Americans' wealth and reduce consumer spending. Nagging energy-supply concerns, however, hint at potential problems ahead and any increase in energy prices would likely affect stocks.
The federal Energy Information Administration recently forecast that U.S. demand for petroleum products will rise about 1.5% next year, including a gain of nearly 2% in the first half. The agency also forecast an average daily oil price around $65 a barrel, about 7% above the current price.
That might seem paltry compared with double-digit percentage gains in recent years. But to end up with even a 7% increase in the daily average over the course of a full year -- which is bound to include some short-term market pullbacks -- there would have to be offsetting rallies of more than 7%.
“What you really have is an earnings rotation, sort of like when investors get out of one sector and into another,” Mr. Thompson says. Regardless of the direction of energy prices in the next few quarters, he says, energy companies will face a tough time improving upon their eye-popping results of recent years.
Energy traders were spooked heading into the latest Atlantic hurricane season. With the memory of Katrina fresh in their minds, traders bid up prices sharply this summer in anticipation of another disaster, then sold when none materialized. From mid-March to mid- July, crude-oil futures jumped nearly 25%, near $78 a barrel. Prices hovered near that level until early August, shortly before the anniversary of Katrina, and have fallen almost 20% since.
Crude's pullback hurt the returns of some big energy- market participants, including the Mr. Pickens's $4 billion BP Capital Management. Mr. Pickens says the losses, which he declines to specify, were largely offset by profitable bets on falling natural-gas prices.
The Organization of Petroleum Exporting Countries cut its crude output earlier this month in response to the sell off from the summer highs, and the cartel could yet tighten supply again. Rising sectarian violence in Iraq and political tensions in oil-producing states such as Iran, Venezuela and Nigeria could disrupt output. The question remains whether new oil deposits will be found to replace production from mature wells and feed the appetite of emerging oilconsuming economies such as China's.
“The consumer is the key angle,” for investors looking for energy-related fallout in the stock market, says portfolio manager Russ Koesterich, of Barclays Global Investors. “Energy prices are also an emotional issue for people, something that affects sentiment. You can't underestimate that part of it.”
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December 6th, 2023
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