Oil and natural gas prices plummeted as glut concerns overwhelmed concerns of cutbacks in energy investment. Natural gas fell below 2.0 per million Metric British thermal Units (MMBTU) for the first time in three years. With supply on pace for a record in October, along with El Nino warmer than normal weather forecast, the November contract sold off into option expiration. Not only is the market pricing in weak demand in the short term but along in the long run as well! It looks like winter is canceled!
The Bust Phase
Of course at these prices, it will take its toll on output. Unlike past years where drillers could make up losses on gas with liquid production, those days may be gone. A respected energy analyst at Citi Futures Perspective in New York, said it best when he told Bloomberg News, “In terms of the big-picture, boom-or-bust cycle, we are in the bust phase.” “It’s a bad time to become bearish on natural gas -- it really is,” Evans said. “The lower we go, the more of a bargain it represents and the less sustainable the price becomes."
Oil prices continued to slide as the weather and talk of an increase in crude supply is weighing on sentiment. There is also word that the U.S, as part of the budget deal, may sell oil from the Strategic Petroleum Reserve to raise cash. Bloomberg News is reporting that the U.S. plans to sell 58 million barrels from 2018 to 2025 from the Strategic Petroleum Reserve under a budget deal reached on Monday night by the White House and top lawmakers from both parties.
Breaking News
The proposed sale, included in a bill posted on the White House website, equates to more than 8 percent of the 695 million barrels of reserves, held in four sites along the Gulf of Mexico coast. Sales are due to start in 2018 at an annual rate of 5 million barrels, rising to 10 million by 2023 and totaling 58 million barrels by the end of the period. The proceeds will be, “deposited into the general fund of the Treasury,” according to the bill.
The sale is the second time the U.S. has raised cash from the reserve, created as a counter-balance to the power of Arab producers after the first oil crisis of 1973-74. The U.S. may also sell additional barrels to cover a $2 billion program from 2017 to 2020 to modernize the strategic reserve including building new pipelines.
Supporters of the sale argue the U.S. doesn’t require such a big emergency reserve as rising domestic production on the back of the shale boom offsets the need for imports. Critics, including oil analysts and former U.S. energy officials, say using the underground reserve as a piggy bank makes it less effective in meeting its intended purpose: combating a “severe energy disruption”. What’s more, the government would be selling at a time when oil is unlikely to have recovered from its slump over the past 18 months according to Bloomberg News.
Get ready to buy. There is blood on the streets! Look for long-term bullish option plays!
The national average price for regular unleaded has fallen for 17 consecutive days for a total savings of 12 cents per gallon. The national average currently sits at $2.20 per gallon and is the lowest price since February. That’s 85 cents lower than a year ago.