Natural gas prices hit 14 year low on warmer weather, ample supply

Tuesday, December 15, 2015

US natural gas prices slumped to their lowest level in over a decade as warm weather conditions saw the supply glut increase. Temperatures in New York hit a record high for this time of the year yesterday and natural gas prices reflected the depressed demand outlook with front month futures traded on NYMEX slipping to $1.862/mmbtu. Prices have fallen just under 35% since the start of the year as output is set to hit a record level for the fifth straight year as output from shale fields continues to expand. With the expectation of mild weather set to persist throughout the remainder of the month and potentially into January we are likely to see natural gas prices remain under considerable pressure with additional moves on the downside likely.

Crude oil benchmarks hit a fresh low for the year on Monday as both front month Brent and WTI contracts faced renewed selling pressure early on with intraday moves hitting $36.33/bbl and $34.53/bbl respectively before a late stage rally. The new seven year lows were prompted by the expectation that the US Fed would raise interest rates tomorrow and investors rushed to rebalance portfolios and pull out of crude oil. Since the OPEC meeting at the start of the month Brent futures have lost over 10% and with ongoing uncertainty permeating through the market, a stronger US dollar outlook on an expected rate hike, and over supply concerns we could see crude benchmarks struggle to stabilise and reverse the most recent declines in the coming sessions.

Iron ore prices continue to face significant headwinds at the start of this week with very little to indicate prices may recover any time soon. The benchmark TSI 62% Fe CFR Tianjin index settled at $37.50/tonne on Monday, fifty cents more than Friday’s settlement price but by no means anything to write home about. Given the substantial supply overhang in the iron ore market and the expectation of slowing Chinese steel demand we have not yet seen the sort of consolidation that lower crude oil prices sparked among producers and refiners. The 45% year-to-date decline is likely to have a lasting impact on the industry with many smaller producers underwater at these prices. If the slump persists, which we believe it will, we expect to see smaller miners exit the market.

Natural gas prices hit fresh multi-year low 

NG1 Comdty Generic 1St NG Fut 2015 12 15 07 40 16

Brent futures trade lower on US rate rise expectation

CO1 Comdty Generic 1St CO Fut 2015 12 15 08 04 33

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