This has been an amazing run for natty prices, and it surprised me a lot even though I have been bullish about the commodity on an intermediate and long-term basis. This has compelled me to try to explain how in the world we got to $11 natty, especially given that it's shoulder season and storage levels are about in line with the 5 year average.
Here is what I've been able to come up with.
As of 1/1/09 the revised 5-year average for low storage (week #13) will increase to 1,349 BCF (as a result of lopping off the 642 low of '03 and then adding in the 1,277 figure for that week in '08). So that becomes the new target ending point for the storage operators.
If injections from here to end of injection season were to equal the 5 year average we would end up at around 3.3 TCF of storage. The problem presented by that scenario is that during this last draw season, which (as much as I can tell) had around normal weather overall, we pulled 2.3 TCF from storage. So if we have a normal summer and a normal winter, we end up with only 1 TCF of storage, a significant deficit to the updated 5 year average.
I believe this explains why we are looking at $10-11 gas today, and why, IMO, this is not just some sort of temporary spike. Your comments, criticisms appreciated as always. |
