MARKET COMMENTARY | For Week Ending 8/26
Increased power sector demand fuels natural gas’ 11.1% week-over-week rally.
Weather forecasts called for abovenormal temperatures throughout the eastern two-thirds of the nation, with below-normal temperatures in the West. Even so, the September natural gas contract dipped 1.8 cents lower to close and expire at $2.853 per MMBtu. Crude oil retreated 66 cents to $46.98 per barrel as traders considered Fed Chairwoman Janet Yellen’s comments on potential rate hikes the prior Friday. Equity markets started the week on a positive note, led by a rally in financial shares.
With the potential for tropical storm activity to disrupt production in the Gulf of Mexico diminishing, the new prompt October natural gas contract slid 6.9 cents to $2.827. Crude oil wavered, with pressure from a stronger dollar and Iranian plans to increase production by year-end. In a news conference, the Iranian deputy minister said the country planned to boost output by 200,000 barrels a day. As a result, prices declined 63 cents to $46.35. Equities gave back some of Monday’s gains as U.S. monetary policy remained in focus.
Natural gas rebounded 6.0 cents to $2.887 after the Bureau of Safety and Environmental Enforcement said around 10% of natural gas production in the Gulf of Mexico shut-in due to Tropical Depression 9. The Energy Information Administration (EIA) reported another 2.3 Mb increase to domestic oil inventories. As a result, crude oil fell $1.65 to $44.70. Falling energy stocks weighed on major equity benchmarks even though the ADP Employment report showed 177,000 private sector payrolls were added during August.
Natural gas lost ground after the EIA reported a larger-than-expected 51 Bcf injection into storage. The cost of gas dropped 9.5 cents to settle at $2.792. Hopes for an OPEC production cap agreement to stabilize the crude oil market faded and prices dove $1.54 to $43.16. Equities traded in a narrow range as investors looked ahead to the following day’s Employment Situation report.
Equity markets moved higher after the monthly jobs report revealed 151,000 jobs were created during August. The figure was likely not sufficient to give the rate hawks an edge in this months’ FOMC monetary policy meeting. Oil tracked with equities and the commodity rebounded $1.28 to end the week at $44.44. Natural gas was unchanged at $2.792.
After markets reopen Tuesday following the Labor Day holiday, crude oil traders will zero in on talks between major oil producers over potential production caps. Natural gas traders will closely monitor the weather forecast to determine near-term price direction.