Many of the market prognosticators are predicting rallies in the prices of both Natural Gas and Crude Oil.

There are several articles concerning improved price expectations linked on the following price chart page: www.barchart.com  (see price charts below).

They have a myriad of reasons for the bullish sentiment, but all agree that both products were severely oversold.  In the last week, both appear to have reversed the downtrend and are ready to move up.  Much of the bullishness, particularly in natural gas, is rooted in on the weather expectations for the remainder of winter.

Most weather forecasters are now calling for cold to hit the Eastern US shortly after Christmas.  Most also predict the remainder of the winter to  be very cold and wintry in the southern and eastern parts of the nation.

My favorite weatherman, Joe Bastardi at Weatherbell Analytics, predicted this pattern last August.   Joe posts a daily video that summarized his views of the long and short term weather patterns developing, some are pretty technical, but all are entertaining.   In recent weeks, nearly all of the recognized weather forecasters have presented similar forecasts.

Today’s EIA report on natural gas in storage showed actual withdrawal from storage at 32 BCF vs 25 BCF expected.  That is a slight positive for prices.  Look for that number to increase dramatically as the winter weather patterns kick in and storage is drawn down.  That should lead to significant price support, .

This is not to say the price decline is over,  we could live with low prices for quite a while.  It just appears that we should see a product price bounce that lasts a few weeks (months?).  That will give producers a bit of relief and opportunity to prepare for the next flat to down cycle (ie hedging opportunity).

My thoughts this Christmas Eve morning.

Merry Christmas

Tom

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Nat Gas 12.24.15 Crude Oil 12.24.15

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About the author

Tom Hohn is a petroleum engineer who has worked in the oil and gas industry for 40+ years. He has endured several booms and busts during that time. In reality, the tough years outnumber the good years, but it is a great industry that has treated him well.