The Energy Report for Thursday, November 20 2009

Tis the season for  walking it a winter wonderland as Jack Frost nips at  your nose or other extremities but really what is the first true sign that winter is here? Is frost on your window pane? Perhaps that first snow flake. Nah.  It's really the first withdrawal in natural gas storage silly. I mean winter has not really begun until we start cutting into that storage supply. Now I know my readers love when I talk crude oil and we will get to that (be patient). But sometimes we have to touch on other parts of the energy complex and it has been awhile since we have talked gas of the natural kind.

The reason I chose today is I believe we will see our first drawdown in supply or withdraw from storage. I am looking for natural gas to be down about 3 bcf. Now it won't be a big draw and if we do not get it then that means that winter is not here than my cold ear index has let me down. Now for those of you who do not know or are new to the gas market the theory goes that in the summer demand for natural gas mainly a heating fuel (ok work with me on this) is weak and we build up storage going into winter. We need to build up storage because when it gets frosty cold we need more supply to meet that winter time demand. As the winter wears on supplies start to dwindle thus making winter the drawdown season and summer the supply building season. Still over the last few years with the increased use of natural gas as a fuel used to generate electricity the summer rebuild season has become a lot more exciting. Summer there always seems to be worries that we don't get to full storage going into winter.

As of last week supplies were in pretty good shape. According to the EIA (Energy Information Agency natural gas storage data our supply stood at 3,467 billion cubic feet. Now that is pretty good storage considering the fact that is 3.5% above the five year average but at the same time perhaps a little disappointing because we are 2% below a year ago. Now last year as you remember, global warming let us all down and we had a long cold hard winter. In November of last year natural gas hit a low of $7.18 cents only to soar to a high of $949.80 in February. Now I admit that move came against a backdrop of a strong bull market on the petroleum side of the equation but what I am trying to say is that if we get a cold winter and with gas priced below year ago levels it might be a good time to start putting on some bullish strategies with options and otherwise.

Sure we have to consider that the economic slowdown may have some impact on this market going forward. Factories and power generators are big users of natural gas and if they are running less we may see less demand giving us more room supply side. Eileen Moustakis of Reuter's news reported that power production in the continental United States for the week ended Nov. 15 slid 1.9 percent from the same 2007 week to 71,948 gigawatt hours according to data released Wednesday by the Edison Electric Institute. They said that New England showed the largest year-on-year percentage decline in output, falling 5.2 percent to 2,333 GWh.
 Now the natural gas market we trade is mainly a domestic market based on the Henry Hub Delivery point but there are some interesting storey based upon the global slowdown that may actually temper some gas moves and maybe not. Take for example this Reuters story about natural gas in global warming obsessed UK. Reuters says that a global recession and cheaper coal are likely to cut Britain's demand for natural gas this winter, possibly speeding up the fall in gas prices which have so far lagged behind the slump in oil markets. There has been no significant decline in gas demand yet, industry officials and analysts say, but expect it to drop in  coming months as the economic downturn and higher retail gas and power prices encourage consumers and industry to save energy.

British gas prices for the first quarter of 2009 have dropped by about 40 percent since July.       This compares with a fall in oil prices of more than 60 percent from a record above $147 in July to $55 a barrel now. Reuter's go on to say that he recession has already started to erode power demand, with Britain's grid operator National Grid on Thursday reducing its forecast for Britain's peak electricity usage.  Does this slowdown in demand tell us something about our market? Ii know what it night tell us about the green energy market. Today's Wall Street Journal says that    President-elect Barack Obama vow to promote clean and renewable energy just got a whole lot more challenging.   The President elect says that his "presidency will mark a new chapter in America's leadership on climate change"   yet says the Journal the nation's power companies suddenly are struggling to turn that promise into reality. Hobbled by the financial crisis, power companies across the U.S. are slashing capital budgets and canceling projects for clean electricity. Financing for new nuclear power plants appears shaky. And some energy companies are even having trouble satisfying their short-term needs for cash. A must read in the Journal.

See in a weird way natural gas will be the best cheaper alternative for clean energy. I still feel that we will see s seasonal spike in gas put if the economy continues to falter then it had better get real cold or we might night see the spike I like. We are starting to spike as the Weather has been colder and the North East forecast is winter like.

Now on to oil! See your patience paid off! Are you not proud of yourself? I suppose I could go onto the supply report and talk more about the slowing global economy but what I think will be the topic of conversation around the oil tank will be the fact that Goldman Sachs is out of oil! That is right! Goldman Sachs the author of the super spike is abandoning the oil market. Dow Jones Newswires reports that Goldman Sachs will close all of its oil trading recommendations, as "we do not expect significant upside potential" in the near term. The volatility in the past few weeks has mostly been to the downside and the pressure on the oil complex has increased.â€�  It is very possible that the weakness we are seeing overnight in oil is tied to the unwinding of Goldman and Goldman groupie's positions. Remember it was just a few months ago that Goldman said the downward move was over done.

Of Course we were bullish oil before Goldman and we were bearish before Goldman assuming that Goldman is bearish now. Our average price for oil in 2008 should come right in on target. Still I admit it was a crazy ride.

Of Course not as many people are taking rides. Take for example the fact that according to the Federal Highway Administration U.S. motorists drove less in September for an 11th consecutive month even as gasoline prices declined. The Federal Highway Administration said that Vehicle-miles traveled fell a whopping 4.4 percent from a year earlier. Total miles driven have fallen by 90 billion since November 2007. Who are the biggest losers? No not the oil companies! Not the refiners! No the Tax man that is losing out big time!

Speaking of losing out big time could it be Senator John Dingell from Michigan? Now first of all I don't think this is the time of year to pick on Senator Dingell with the holidays coming and all.  I mean with a name like Dingell he is probably a distant relative of one of Santa's elves. Wasn't it Dingell Kringle or single Kringle! Tanta Kringle Well whatever I don't think the California Liberal Democrat wing of the Congress believes in Santa thinks that the Chair of the Energy And Commerce Committee is not liberal enough and hasn't done enough to squeeze the auto industry and its management that should take a back seat to the more liberal attack dog U.S. Rep. Henry Waxman. Wax man had, D-Calif. So he can get his litigious little hands on this committee so he can investigate everything free market or Republican based.  Yesterday a democratic steering committee voted 25-22 vote to seat Waxman. The Final decision will be made today!

Stay tuned!

Make your final decision today! Switch to the Fox Business Network and sign up for your free trial of Alaronenergies! Just call me at 800-935-6487 or email me at  pflynn@alaron.com to open your account,

We're short January crude from apprx  5760 -  lower stop  to 5900.

 Buy Dec Heating oil at 16700 - stop 16300.

Sell December RBOB at 13600 - stop 14400.

Buy December natural gas at 615 -  stop 470.

Have a GREAT day!