Reality is raising it's ugly head on the oil market lately with even the bulls facing up to the reality that they can churn away and talk up the positive all they want but at the end of the day, someone has to be the one left standing when the music stops.
We've noted before that UK gas hasn't moved up in sympathy with oil as it would "conventionally" be expected to do. But we now see that gas is accelerating it's plunge downwards from oil.
This is the time of year that storage is filled. But with UK storage already over 83% full, July, August and September should see prices crash further. There literally isn't anywhere else for it to go. Europe will be filling up, and even North America is not limitless in it's capacity.
We thought we were bears, but this from the Canada Financial Post, makes us look like unbridled bulls. Worth reading when the dead cats bounce back:
At a recent presentation to money managers in Canada's oil and gas heartland, the chief executive of a major Calgary-based energy trust used an interesting choice of words to describe natural gas. He referred to the commodity as a "wasted byproduct."
The suggestion that natural gas is worthless may be extreme, but it is an indication of the challenge the industry faces. Market experts continue to expect weak prices for natural gas as a surge in unconventional gas discoveries, such as shale plays, pour on to an already-flooded market. Add in unpredictable weather and a slower-than-forecast economic recovery, and the outlook doesn't get much brighter.
We're going into one of those periods where this commodity has everything going against it," said Norman MacDonald, who manages the Trimark Canadian Resource Fund. "When you couple low-cost gas from the Middle East about to hit the shores of North America with some of these shale plays that have been emerging, it's kind of a worst-case scenario for the overall supply outlook and supply cost for natural gas
They do try and be two sided. And don't really succeed:
Not everyone is a pessimist on the outlook for the market. Mr. King of FirstEnergy Capital expects supply to tighten in the United States because of the downturn in drilling that has been going on for almost a year now. Gas rigs now hover around the 690-level, marking a 57% peak-to-trough tumble in U. S. drilling activity since last fall. He expects to see some stabilization of demand into 2010. So, if supply continues to come off, non-weather related demand improves and winter is cold, the big storage overhang may start to be unwound. Those, however, are a lot of ducks to get in a row. Anyone who has bought UK gas or power on a fixed price contract the past few months is a sitting duck for any competitor who goes with the downward flow of index prices. But it could be worse: anyone who fixed for two or three years this time last year, is a dead duck.
Comments