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Daniels Trading - Special report natural gas prices - January 21th, 2014
From early 2007 many analysts thought the natural gas market was facing an unending oversupply condition and slack industrial demand. Furthermore, the market was being held in check by historic drilling efforts that were accentuated by advances in technology. But while the wheels of justice and commodity fundamentals grind slowly, they also grind exceedingly fine. Long-term change is afoot in the natural gas market.
While the tightening of supply has a long way to go before that theme provides a dominant lift to natural gas prices, a couple of record weekly draws in the US supply in December 2013 and January 2014, combined with consistent year-over-year working gas in storage readings below the 750 bcf level could alert the trade to the end of oversupply and the beginning of a tightening situation.
Another issue that might signal a shift in the fundamentals of supply is drilling rig counts at the lowest levels since 2000. But the primary reason for our turning more positive is the realization that the world economy is recovering and that over 50% of US natural gas demand comes from industry and electrical power generation. For this reason we expect 2014 demand to be the strongest since 2008, when prices averaged almost twice current