From everything I keep hearing, I think it’s best to remain patient. I think late-Jan to mid-Feb might provide an even better opportunity to lock in extended coverage. The EIA recently released info that showed Natural gas working inventories on November 28 totaled 3.41 trillion cubic feet (Tcf), 0.23 Tcf (6%) below the level at the same time a year ago and 0.37 Tcf (10%) below the previous five-year average (2009-13). Despite the lower stocks at the start of this winter’s heating season, EIA expects the Henry Hub natural gas spot price to average $3.98/million British thermal units (MMBtu) this winter compared with $4.53/MMBtu last winter, reflecting both lower expected heating demand and higher natural gas production this winter. (Source: US Energy Information Administration Outlook)
We’ve had a lot of folks writing in asking about diesel and specifically if they should be locking in large quantities on the price break. I definitely think the break has been a buying opportunity, but I wouldn’t get overly aggressive. In other words you might want to hold off on buying extra-large quantities. Several good sources actually believe we may have a bit more room to the downside. Personally, I’m targeting late-Jan into mid-February as our potential lows in the marketplace. The “wild-card” is obviously OPEC and how they will elect to play their hand. Remember, it was Saudi Arabia that surprised the market by vowing to keep production levels high in order to put pressure on US energy companies. There is now some speculation the recent slide might be too painful for other OPEC members, and prompt then to cut production in oder to prop up prices. The next OPEC meeting is scheduled for Nov. 27 and should shed some additional light. I should point out there are new reports circulating that show major US production would not be impacted until crude oil prices fell below $40. Citigroup recently released a report saying it would be closer to $50 when the big producers in the US would have to stop. Thoughts are about 25% of the producers would have to stop if prices fell below $70. What we have to understand is the so called “break-evens” are much higher in other parts of the world: Saudi Arabia’s break-even is thought to be somewhere between $85 and $90 a barrel; Russia between $100 and $105; Iraq between $110 and $115; Iran between $120 and $130; Venezuela between $150 and $160; Libya between $160 and $175.
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