Natural Gas Storage Hiked by 80 Bcf– September

Natural gas prices hiked during the past several days. The total NG demand rose during the week mainly due to the rise in the demand in the industrial sector. The natural gas production rose and the rig count also increased. The storage levels rose again at a slower pace than last year  but at a slightly faster pace than the 5-year average. According to my rough guess at the current pace the storage will peak around November at 4,000.

Here is an analysis and short review of the recent developments in U.S natural gas market based on the EIA report for the week ending on September 20th:

Natural Gas Storage

The underground natural gas storage (Billion Cubic Feet) increased for the twenty-eighth consecutive week; last week the storage levels increased by 2.29% or by 80 Bcf – the highest injection in 2012; the storage reached 3,576 billion cubic feet for all lower 48 states; the current storage remained 8.6% above the 5-year average, and is also 9% above the storage during the same week in 2011 – this figure is slightly lower than the figure from last week. During the parallel week of September 2011 the NG injection was 111 Bcf but the five year average injection for the third week of September was 75 Bcf. Thus, the recent injection was lower than last year but slightly higher than past years’ average injections. According to my (very) crude estimates, if this trend will continue the storage level will peak around the middle of November at nearly 4,000 Bcf, which is higher than the storage level in 2011.

The rise in storage was primarily due to a 44 Bcf injection from the Eastern consumption region storage.

In the following chart are the shifts (based on weekly figures) in storage (and Henry Hub spot price between the years 2011 and 2012. The chart presents the recent recovery of natural gas prices. All awhile the storage levels continue to stock up at a slower rate than the previous year.

During last week the Henry Hub spot price decreased by 4.2% to a weekly average price of $2.76/mmbtu. The Henry Hub price remained $1.01/mmbtu below its price during the same week in 2011.

Consumption
During last week the average U.S consumption, on a national level, rose by 2.6% (W-over-W). The consumption was also 10.84% higher than last year.

The residential/commercial sector led the rise with an 11.71% gain. Indusial sector’s demand also rose last week by 1.43%. On the other hand, the power sector’s demand decreased last week by 1.05%. The total demand for gas was up by 3.02% than the previous week levels but was 11.39% above the same week in 2011.

Production and Imports

Imports from Canada rose during last week by 4.63%; they were 1.93% above the levels in 2011.

The gross production slipped last week by 0.05% but was 1.21% above the production level in 2011. As a result, the total supply of natural gas increased by 0.26% during last week.

According to the report the natural gas rotary rig count rose by 6; by the end of last week the number of rigs reached 454.

On a national level, the U.S temperatures were 0.9 degrees cooler than the 30-year normal but 2 degrees warmer than last year. The drop in the temperatures may have curbed the growth in the demand for natural gas.

Gold and Silver Prices Outlook for October 1-5

During last week, gold and silver prices slightly
declined as the recent developments in Greece, Spain and Italy that included riots against austerity measures may have pulled down not only bullion rates but also the Euro. By the end of the week, the release of Spain’s budget for 2013, which introduced, according to the Spanish government, austerity measures that are with accordance to the EU guidelines, may have contributed to the rally of the Euro and precious metals rates. There were several reports that were published during the previous week: the U.S GDP growth rate was revised down to 1.3%; U.S new home sales declined in August by 0.3%; U.S consumer confidence index rallied in September; U.S jobless claims declined by 26k to 359k. This mixed signal regarding the development of the U.S economy may have contributed to the little movement of bullion rates.  

The FOMC decision to launch QE3 is likely to resurface this week as Bernanke is set speak on the Fed’s monetary policy; the minutes of the recent FOMC meeting will be published. These two items could affect gold and silver rates during the week.

Here is a short outlook for October 1st to 5th; this includes a fundamental analysis of the main publications and events that may affect precious metals markets such as: U.S non-farm payroll report, ECB, BOJ, RBA and BOE interest rate decision, U.S manufacturing PMI, and U.S. jobless claims.  

Gold edged down during last week by 0.26%; further, during said time the average price reached $1,767.8 /t. oz which is also 0.26% below the previous week’s average. Gold finished at $1,773 /t. oz.

Silver also slipped on a weekly scale by 0.18%; further, the average rate decreased by 1.09% to reach $34.22/t oz compared to the previous week’s average rate.

The Euro also decreased against the U.S dollar by 0.94% (on a weekly scale); further, other “risk” currencies such as the Australian dollar also depreciated against the U.S dollar by 0.74%. The deprecation of the Euro, Canadian dollar and AUD may have contributed to the decline of precious metals. The correlation between the Euro/USD and precious metals remains mid-strong and positive: during September the correlation between Euro/USD and gold reached 0.60 and between USD/Canadian dollar and gold the correlation was -0.624. This means if the Euro and other “risk” will continue their downward trend, this could further impede gold and silver from rising during the following week.

In the video below there is a broad overview of the main publications, speeches and events that may affect gold and silver prices between October 1st and October 5th. These include the above-mentioned news items such as: Bernanke’s speech, minutes of FOMC meeting, U.S non-farm payroll report, ECB, BOJ, RBA and BOE interest rate decision, U.S manufacturing PMI, and U.S. jobless claims (just to name a few).

In conclusion, I guess gold and silver could resume their upward trend especially if the minutes of the FOMC meeting and Bernanke’s speech will contribute to the speculations that the Fed could consider additional monetary steps in the near future and if the U.S economy will continue to show little progress. In this regards, the upcoming reports regarding the U.S economy include the U.S non-farm payroll report and manufacturing PMI; they could pull up precious metals rates if these reports will show little growth. This, in turn, could raise the chances of Fed loosening up its monetary policy by raising the target inflation or intervening in the forex market or pegging the long term yields to a low rate or other.  On the other hand the uncertainty around Europe could curb the bullion rates’ rally: If the ECB will lower its rate again this could pull down the Euro. The progress in Europe including the budget issues in Spain and Greece are likely to keep the volatility high of the Euro. Until Spain will make the formal request to start the ECB bond purchase program, this is likely to keep pulling down the Euro, which means other “risk currencies” and commodities prices are likely to follow.  If China will introduce additional measures to jump-start its economy, this could also help rally commodities rates. The appreciation of the Indian Rupee is likely to raise the demand for gold in India, the biggest importer of gold. Finally, if the Euro, Aussie dollar, Canadian dollar and other exchange rates will continue to trade down against the USD, this could also adversely affect precious metals

Today's oil price

$92.10 per barrel

Daily change of 0.17 ( 0.18% )

Oil Quote Updated Sep-30-12 1:30 PM

Gold and Silver Prices Outlook for October 2012

Precious metals prices resumed their upward trend mainly during the first couple of weeks of the September in anticipation of many bullion traders for another intervention of the FOMC. This bet paid off because on September 13th the FOMC announced it will commence QE3 with no time limit. This news, however seems to have had, for now, a short term effect as the prices of precious metals remained nearly unchanged during the rest of the month. I have referred to this issue in a recent article and think that the prices of gold and silver will resume their rally in the months to follow. On the other hand, the recent developments in Europe, including the riots in Spain, Greece and Italy, may have curbed the recovery of not only bullion prices but also the Euro. The rally of Euro/USD, mainly during the first couple of weeks of September, coincided with the rise of precious metals prices. Will this upward trend continue during October? The main events of the month will continue to be around the FOMC, the EU debt crisis and the economic progress of China and India, the two leading importers of gold. The FOMC will convene during the final week of October. Bernanke will give a speech and the Fed will release the minutes of the recent FOMC meeting on the first week of October. The ECB will announce its interest rates and might commence a bond purchase program to help Spain in raising debt. In October, there will also be a Summit of the financial ministers of the G7.  

Let’s analyze the precious metals market for September and provide a short outlook for gold and silver for October 2012.

Gold and silver rates started off the month strong as both precious metals hiked during the first half of the month but then they changed pace and remained nearly unchanged during the second half of the month.  Most of the growth in prices came in anticipation of many traders that the FOMC will announce of September 13th of its launch of QE3, which turned out to be the case.



During the month, gold rose by 5.11%; silver, even more than gold, hiked by 9.97%. This was the best performing month for gold since January 2012.

Let’s divide September into two parts: the table below divides the month at September 13th; I divide the month in order to demonstrate the sharp shift in the pace of change of both gold and silver rates; during the first part of September, gold rose by 5% and silver price by 10.6%. During the second part of September, silver edged down by 0.2% and gold price rose by 0.1%.

During the first part of September, the U.S dollar also sharply depreciated against the Euro; the Euro/USD currency pair is usually strongly linked with gold and silver prices. During the first part of the month, the U.S dollar sharply depreciated against the Euro, Canadian dollar and Australian dollar; this shift might have also contributed to the rally of gold and silver prices during the first part of the month.

The chart below shows the changes of gold and silver prices during September, in which the prices are normalized to 100 on August 31st 2012.

The next chart presents the shifts in the ratio of gold to silver (gold price/silver price) during September; the ratio had a modest downward trend mainly during the first part of the month. The ratio fell as silver price has out-performed gold price. In the last week of September the ratio ranged between 50 and 54.

Here are several factors that may have contributed to the rally of gold and silver during the month:

The decision of the FOMC to launch QE3 (see below for more);
The pledge of the FOMC to keep rates low until mid 2015;
The recent U.S non-farm payroll report that was much lower than expected and thus raised the odds of an intervention of the FOMC in a form of a stimulus plan;
The decision of the Bank of Japan to expand its stimulus plan by 10 trillion yen;
The expectations from China to issue additional easing steps to help jump-start its economy;
The growth in demand for gold in India, the world’s biggest consumer, on account of the underway of the festival and wedding season and the appreciation of the Rupee;
The rally of the Euro/USD during the first part of the month;
The fall in the U.S jobless claims on the last week of September;
The slow improvement in the U.S as presented by the Philly Fed index and U.S GDP; this slow growth is likely to raise the speculation of another intervention by the FOMC in the near future;
The expectations of the market from ECB to introduce of bond purchase program so that the Bank will start to purchase Spanish bonds;
The U.S. federal deficit expanded by 190 billion during September 2012 – the highest monthly deficit since March 2012; this expansion raises a bit the uncertainty level in the market;
In conclusion, I speculate gold and silver will continue their upward trend as the effect of QE3 will continue to pull them up. If the U.S economy will continue to show little progress in the labor and manufacturing sectors (Philly Fed, PMI manufacturing) this could have a mixed effect on bullion rates: it could pull them up via the rise in the chances that another stimulus plan by the Fed will be introduced in the near future, but it could also adversely affect them via the negative effect it will have on U.S stocks, commodities prices and LT yields. The expectations of an intervention by ECB to ease Spain’s debt crisis might pull up the Euro, which is strongly and positively correlated with precious metals prices. If Spain will continue to wait with this bond program and the situation in Italy and Greece won’t progress then this could pull down the Euro as was the case during the last couple of weeks on September. The recent appreciation of the Indian Rupee and expected rise in demand for gold (seasonal effect) is likely to positively affect gold. I suspect all these items mount up to bullion trading up. Finally, if major currencies including Euro and Aussie dollar will trade up against the USD, then this could help rally bullion rates.

The full report for October is coming soon.

Weekly Outlook of Financial Markets for October 1-5

During the previous week, the prices of bullion shifted with an unclear trend as the recent developments in Spain, Greece and Italy continued to pose uncertainty in the Euro Area. Further, the mixed signal about the progress of the U.S economy, e.g. the low growth in U.S GDP in Q2 while U.S jobless claims fell to 359k, may have also contributed to the mixed trend in commodities and forex markets.  The FOMC decision to launch QE3 is likely to resurface this week as Bernanke is set to give a speech on the monetary policy of the Fed and the minutes of the recent FOMC meeting will be published. There are several important publications, speeches and events that may affect the financial markets during this week. These include: U.S non-farm payroll report, Bernanke’s speech, ECB, BOJ, RBA and Bank of England rate decision, U.S manufacturing PMI, EU unemployment rate and U.S. jobless claims. Here is an economic news calendar outlook for October 1st to October 5th regarding the U.S., GB, Japan, Australia, EU, and Canada.  

Monday, October 1st

09:30 – GB Manufacturing PMI: This report will pertain to Great Britain’s manufacturing sector status in September 2012. In the recent report regarding August 2012 the index rose to 49.5%. This rate means the manufacturing sector is contracting at a slower pace; this index might affect GB Pound;

10:00 – Euro Area unemployment rate: the rate of unemployment of the Euro Area edged up to 11.3% in July. This mean there wasn’t any significant changes in the unemployment. If in the upcoming report there will be a sharp change in unemployment, it could affect the Euro;

15:00 – U.S. ISM Manufacturing PMI: This report will refer to the monthly changes in the manufacturing sector on a national level for September 2012. During August 2012 the index edged down to 49.6%, which means the manufacturing is still contracting; this index may affect forex, crude oil and natural gas markets;

17:30 – Bernanke’s Speech: Following the recent decision of the FOMC to launch another quantitative easing plan monetary intervention, many will look towards Bernanke’s speech that could hint of the Fed’s future monetary steps.  The Chairman of the Federal Reserve will talk at the Economic Club of Indiana, in Indianapolis. The title of the speech is ““Five Questions about the Federal Reserve and Monetary Policy”;

Tuesday, October 2nd

05:30 – Reserve Bank of Australia – Cash Rate Statement: the overnight money market rate of Australia’s Reserve Bank remained unchanged at 3.5%, which is still the lowest level since the end of 2009. If the RBA will decide to lower the rate again, this news may affect the Australian dollar that is strongly correlated with commodities prices;

Tentative – Great Britain 10 Year Bond Auction: the British government will issue a bond auction; in the recent bond auction, which was held at the second week of September, the average rate reached 1.83%;

2:30 – Australian Trade Balance: The upcoming report will refer to August 2012. In the previous report, the seasonally adjusted balance of goods and services expanded its deficit to $556 million in July. The export of non-monetary gold fell by $420 million (25%); if the gold exports will continue to fall in August, it might suggest a decrease in demand for non-monetary gold (see here last report);

Wednesday, October 3rd

13:15 – ADP estimate of U.S. non-farm payroll: ADP will publish its estimate for the upcoming U.S non-farm payroll change during September 2012 in anticipation for the upcoming no-farm report to be published by Friday;

15:00 – U.S. ISM Non-Manufacturing PMI: This report will present the developments in the non-manufacturing sector during September 2012. During August 2012 this index rose to 53.7% – this means the non-manufacturing is expanding and at a slightly faster rate than in the previous month; this index may affect forex and commodities trading;


15:30 – U.S Crude Oil Stockpiles Report: the EIA (Energy Information Administration) will publish its weekly report on the U.S oil and petroleum stockpiles for the week ending on September 28th; in the previous weekly update for September 21st, stockpiles declined by 2.6 million bl to 1,798 million bl;

02:30 – Australian Retail Sales: This monthly report will present the developments in Australia’s retail sales during August 2012. The retail sales (seasonally adjusted) fell by 0.8% in July; this news may affect the strength of the Aussie dollar;

Thursday, October 4th

Tentative – French 10 Year Bond Auction: the French government will also issue a bond auction; in the recent bond auction, which was conducted during the first week of September, the average rate reached 2.21%;

12:00 – Great Britain Bank Rate & Asset Purchase Plan: Bank of England will decide on its basic rate for October 2012 and of any shifts in its asset purchase plan; as of September BOE’s rate remained unchanged at 0.5% and the asset purchase plan was left at £375 billion;

12:45 – ECB Press Conference and Euro Rate Decision: The last time the ECB decided to cut the rate was back in July when President of ECB, Mario Draghi announced the EU interest rate will be reduced by 0.25pp to 0.75%; in September, the interest rate remained unchanged. Since many EU countries are still struggling, and since the FOMC decided on QE3, ECB might decide to make another rate cut in the near future by another 0.255pp. If ECB will cut the rate again, it may affect the Euro to US dollar exchange rate;

13:30 – U.S. Jobless Claims Weekly Report:  this update will refer to the weekly changes in the initial jobless claims for the week ending on September 21st; in the latest report the jobless claims declined by 26k to 359,000; this upcoming weekly report may affect the U.S dollar and consequently the rates of commodities;

15:30 – EIA U.S. Natural Gas Storage Update: the EIA weekly update of the U.S. natural gas market will refer to the recent developments in natural gas production, storage, consumption and rates as of September 28th; in the previous weekly report, natural gas storage rose by 80 Bcf to 3,576 Bcf;

19:00 – Minutes of September’s FOMC Meeting: Following the recent FOMC meeting, in which it was decided to launch QE3, and to extend the Fed’s pledge of keeping the short term rates low until mid-2015, the bullion market reacted to this news – gold and silver prices hiked on the day of the announcement. The minutes of the recent FOMC meeting might add some additional perceptive and insight behind this decision and the future steps of the FOMC especially in anticipation of the upcoming FOMC meeting at the end of October;

Tentative – Bank of Japan – Rate Decision and Monetary Policy Statement: Bank of Japan will announce its interest rate and monetary policy for the October. Up to now, BOJ left the interest rate unchanged at 0 to 0.1 percent, but expanded its stimulus plan by additional 10 trillion yen. If the BOJ will introduce a new monetary stimulus plan (which is less likely), it could affect the Yen, other currencies and commodities rates;

Friday, October 5th

13:30 – Canada’s Employment Report: In the recent employment report for August 2012, unemployment remained at 7.3%; the employment rose by 34k during the month. The upcoming report might affect the Canadian dollar and consequently the prices of oil and natural gas;

13:30 – U.S. Non-Farm Payroll Report: in the recent report for August 2012, the labor market expanded by a lower than expected rate: the number of non-farm payroll employment rose by 96k; the U.S unemployment rate slipped to 8.1%; if the upcoming report will continue to show little growth of below 120 thousand (in additional jobs), this may raise the chances of the Fed introducing additional stimulus plan in the near future; this report may affect not only the U.S dollar, but also commodities prices (see here my last review on the U.S employment report);