Monday Morning – Natural Gas Macro




Market Sentiment Watch: Welcome to 2Q13. In energy land expect news flow to begin to pick up again prior to 1Q13 reporting season with a string of spring time conferences and with the quarterly mark to market season in full swing now for analysts as they update their models (especially on the natural gas side). In today's post please find comments on the natural gas macro (weaker production, strong demand for January (and a record level for the Industrial component)). 

Ecodata Watch:

  • Chinese official March PMI came in at 50.9 vs 50.1 in February,
  • Chinese HSBC PMI came in at 51.6 for March vs 50.4 in February,
  • We get ISM at 10 am EST (F = 54.2%, last read 54.2%),
  • We get construction spending at 10 am EST (F = 1%, last read -2.1%)

The Week Ahead:

  • Tuesday 4/2: factory orders, car sales, 
  • Wednesday 4/3: ADP payrolls, ISM non-manufacturing, 
  • Thursday 4/4: jobless claims, 
  • Friday 4/5: nonfarm payrolls, unemployment rate, trade gap, consumer credit. 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. The Week That Was
  4. Natural Gas Marco
  5. Stuff We Care About Today - Odds and ends (still waiting on OEDV to report at post time)
  6. Odds & Ends

Click the link directly below this to ... Holdings Watch:


ZLT (Zman Long Term portfolio)

  • The Blotter is updated.


Commodity Watch

Crude oil (WTI) closed up 4% last week at $97.23 with Brent rising 2%. Crude was helped by a strong distillate demand number and by a generally record seeking equity market but the weekly numbers were largely a non-event (see The Week That Was section below for more details). This morning crude is trading off slightly. 

Natural gas closed up 2% at $4.02 on Friday after EIA reported a bigger than expected, almost record sized withdrawal on Thursday. The front month now looks like this and the 12 month strip, which now sits at $4.19 now looks like this on the five year chart. See The Week That Was section below for more comments on storage. On Friday EIA released the latest available supply and demand for natural gas (for the month of January) and in a nutshell, one could use the word "bullish" but read on and we'll just say that things are working according to plan and that we are more "encouraged". This morning gas is trading off slightly on the more shoulder season like mildness of the forecast. 

  • Rig Count Watch: You'll see more on this in the slide show below but just wanted to point out that the gas-directed rig count so far is ignoring the now 1 year long rally in natural gas prices and fell to 389 last week, below 400 rigs for the first time this cycle. While the gas directed rig count is less of an indicator due to all the gassy liquids rich wells being drilled this is still a positive for righting the supply/demand imbalance and points to the correctness of recent commentary about $4 gas not really being enough of a price increase to get people to send many net rigs back to work. Wwe say "net" because some rigs will arrive due to some E&Ps having nothing better (oilier) to drill while others with oilier prospect inventories like an EOG are still taking purely gas directed rigs out of the system.  By the way, this is not what your average NAM focused oil service company has been predicting. 
  • Weather Watch:
    • Last week saw heating degree days of 148 vs
      • 176 HDDs in the prior week (which produced the 95 Bcf withdrawal last Thursday)
      • and 125 normal for the week.
    • This week's forecast calls for HDDs to move down to 117 vs 113 normal for this time of year.

The Natural Gas Macro - Supply (Production and Imports) vs Demand. 


  • Production Watch:  January 2013  production retreated to 67.6 Bcfgpd, down 0.7 Bcfgpd from December levels, was also down -0.7 Bcfgpd YoY, and was the second consecutive month of retreat in production. Some of this dip is due to weather related freeze ups especially in some of the western square states but not Texas, the Gulf of Mexico and especially Louisiana (down 18% in the last 12 months!). Total production growth from the Lower 48 U.S. has not advanced significantly in 16 months. See graphs below for details. 
  • Imports Watch:  More gas being sent out of the U.S. and less coming in has been the trend. Net imports crept up in January on a seasonal uptick in volumes coming down from Canada but on a year over year basis, imports are off a whopping 1.1 Bcfgpd. See graphs below.    
  • Demand Watch: Just short of record levels but second highest gas demand on record. Industrial demand hit an all time record in January and the only reason total consumption wasn't at record levels was due to January's mildness.  See graphs below. 







The Week That Was

Stuff We Care About Today

Other Stuff

  • OEDV - OEDV should report 4Q results today. 
  • REXX - As expected, REXX's spring borrowing base redetermination resulted in an increase in the borrowing base from $240 mm to $325 mm with a $300 mm commitment level. At last notice, the credit line remained untapped and cash, borrowing capacity and cash flow pointed to no need for an equity offering this year relative to their current capital program.  
  • GST settled its litigation claims with CHK and repurchased it's shares held by CHK for $85 mm.

Odds & Ends

Analyst Watch:

  • HK - Wells Fargo initiates at Outperform

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