The document summarizes the activities and purpose of the Penn State Energy Marketing Association (PSEMA). PSEMA is a student organization that discusses and shares content related to energy marketing. It aims to provide an intellectual forum for students from engineering and business backgrounds. PSEMA hosts guest speakers from industry and shares information to help members develop skills beyond their curriculum. The document also provides summaries of PSEMA's recent events and upcoming events, as well as its monthly market update covering the economy, weather, crude oil, and natural gas markets.
1. PennStateEMA@gmail.com | PSEMA.org 07
The Penn State
Energy Marketing
Association
A newly founded
student organization
The Mission of the Penn State
Energy Marketing Association is
to establish an intellectual forum
where like-minded individuals
shall discuss, share, engage in,
and debate content related to
energy marketing for the purpose
of acquiring industry fluidity and
augmenting personal
marketability.
Bridging the gap
Energy marketing is unique in
that it brings together
engineers and students of
business-minded
backgrounds for a common
purpose. The Penn State
Energy Marketing Association
embraces this notion and is
excited to establish an
academically diverse forum.
Skill development
The Penn State Energy
Marketing Association seeks
to acquire industry knowledge
and skills above and beyond
what is taught in a college
curriculum. PSEMA
accomplishes this by hosting
guest speakers, receiving
special presentations from its
corporate partners, and
mutually sharing information
in an academic forum setting.
This Issue
Economy
Weather
Crude Oil
Natural Gas
February 13
th
, 2017
Forecast Period:
February 13
th
-February 28
th
Issue
07 Market Update
About
The Penn State Energy Marketing Association’s Market Update
is a monthly publication containing price forecasts for crude oil
and natural gas markets. The update also includes analyses of
weather patterns, as well as domestic and world economies
that can influence commodity prices. It is co-authored by
PSEMA members, and each segment is overseen by its
respective Commodity Director:
Director of Economy: Chris Konzel
Director of Weather Samuel Jackson
Director of Oil: James Obermyer
Director of Natural Gas: Mark Capo
President Danny Moore and Vice-President Michael Kaloz serve
as the Executive Editors. Adam Larson serves as the
Webmaster.
Contributors
The following PSEMA members contributed to this edition of
Market Update:
Economy: Compiled by Chris Konzel; co-authored by Ignacio
Dominguez, Timur Ceylan, Austin Pintar, Weston Bushyeager
Weather: Compiled by Samuel Jackson
Crude Oil: Compiled by James Obermyer; co-authored by, Evan
Callaghan, RJ Donohue, Calvin Lobo
Natural Gas: Compiled by Mark Capo; co-authored by Michael
Magyar, Benjamin Masters
Recent PSEMA Events
September 14th
Private Information Session and Professional
Development Presentation with South Jersey Industries.
PSEMA was fortunate enough to host SJI Talent Acquisition
Specialist, Jen Geria, to share SJI’s opportunities with our
members. Jen also spoke on general keys to success in our
professional futures.
September 26th
Information Session with IGS Energy
PSEMA and the Weather Risk Management Club welcomed
representatives from IGS Energy who spoke about their
experiences at IGS and hosted a private recruiting session with
a select few members of each organization.
November 4th
How to Become an Oil Trader with Sean Werber
PSEMA sponsored guest speaker and Penn State Alumni, Sean
Werber. He is an oil trader from Atlantic Trading & Marketing,
an American subsidiary of Total, and gave a presentation
covering topics such as careers in oil trading, what life is like
trading commodities and how to obtain positions such as this.
January 27th
Job Search Workshop with William Chastka and Alex
Bronner
William, an Engineer at UGI Utilities, and Alex, a current Smeal
MBA candidate, hosted a job search workshop. This event was
co-hosted with SPE, and covered information and resources to
help students identify skills and resources to make themselves
more marketable to companies.
February 10th
Guest Speaker John Schwenck from South Jersey Industries
PSEMA hosted a presentation by recent Penn State graduate
and one of our organizations co-founders John Schwenck. He
spoke on how the utility fits into the overall supply chain, as
well as statistical methods that we will soon be able to
implement into our technical analysis.
Upcoming PSEMA Events
February 13th
BP Information Session & Joint Meeting
PSEMA will be hosting BP’s semi-annual information session
sharing opportunities available at BP, as well as holding a joint
meeting with their representatives covering a market update as
well as how to begin applying pipeline analysis to future
newsletters.
February 23rd
Guest Speaker Dr. George Young
PSEMA will be hosting Dr. George Young, a professor of
Meteorology, who will be a holding a presentation speaking
about weather derivatives and how to better analyze weather
forecasts for our newsletters.
Upcoming PSEMA Meetings
Thursday February 23rd 6PM Willard 302
Thursday March 16th 6PM Willard 302
2. 07 PennStateEMA@gmail.com | PSEMA.org
February 13
th
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
Domestic Economy
The month of February looks very promising for the domestic economy. Jobless claims fell
12,000 to 234,000 in the week of February 4th, the lowest reading since November.
Continuing claims are also at record lows, though the latest data for the January 28 week
did see a small rise of 15,000 to 2.078 million. However, the four-week moving average for
initial claims fell by 3,750 compared to prior report of 244,250, supporting the notion that
business confidence has risen since the U.S. election. Nonfarm payrolls rose by 227,000 in
January from a month prior of 156,000. While the unemployment rate for January was
4.8%, 0.1% higher from December, the labor force participation rate jumped 0.2% to
62.9%. However, this minor slack in the labor market has not signaled that the market will
reverse its current course of tightening.
Consumer confidence dropped in the month of January after hitting a 15-year high in
December. The index fell to 111.8 from 113.3 a month prior; signaling the end of the bump
it received after the U.S. election. The outlook is also less upbeat with confidence in income
prospects down. Additionally, there is a rise in consumers saying there will be fewer jobs 6
months from now, and less saying there will be more. The core personal consumption
expenditure index crept forward 0.1% higher with the year-on-year at 1.7%. Total PCE,
boosted by a 1.7% monthly rise in energy, rose 0.2%. But this year-on-year rate, increased
by 0.2% to 1.6% which is the highest since the oil sector collapse in 2014. Personal income
rose by 0.3% in December, with the wages & salaries gaining slightly at 0.4%.
U.S. manufacturing activity increased in January for the fifth consecutive month. The
Institute for Supply Management report on February 1st signaled that its manufacturing
index rose 1.5% from December to 56.0% in January; the highest level for this factory
gauge since November 2014. New orders index continued this trend at 60.4 vs 60.3 in
December, which is the first back-to-back 60 showing since December 2013. Inventories
and delivery times have been slowing in line with rising activity, and raw material costs
are up for the 11th straight month.
Commodity Price:
WTI: $52.86
NG: $2.97
Currencies:
GBP/ USD: 1.25
EURO/ USD: 1.06
CNH/USD: 0.15
JPY/ USD: 0.0088
3. 07 PennStateEMA@gmail.com | PSEMA.org
February 13
th
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
U.S. GDP for the fourth quarter of 2016 came in at 1.9%, missed it’s expected mark of
2.2%. While there was solid consumer spending, and a pickup in business investment,
International trade subtracted 1.7% points from overall growth in Q4. While this was
offset by the build-up of private inventories, it will be a major focus given President
Trump’s ambition to redesign trade policy. The Federal Reserve has decided to leave
monetary policy unchanged in its last meeting in January, but upgraded their emphasis on
inflation. Other tidbits are no mention of fiscal stimulus under the new administration, or
winding down the Fed's $4.5 trillion balance sheet. there is also no reference to the timing
of the next rate hike, but conditions do look favorable for a potential hike in March if the
jobs report for February is strong. Until then, rates will hold steady at 0.50%.
World Economy
With three major European elections coming up in 2017; there has been a lot of anxiety
and speculation about a ripple effect into the European Union. As it stands in France,
Germany, the Netherlands, all have nominees that echo a populist sentiment channeled by
now U.S. President Trump last November; where issues with security, migration and
national sovereignty loom large. They could well be joined by a fourth member, Italy,
where an anti-establishment mood is fueling calls for a sudden election. Two of the
political nominees, Geert Wilders of the Netherlands and Marie Le Pen of France, have
already vowed upon being elected to hold referendums to leave the EU, a move that would
send the already shaky European trade bloc into turmoil, and expect slow economic
growth for the fore-seeable future. The markets have already begun reacting to the
possibility of a populist takeover, with the Euro falling 0.5% to the U.S. dollar on February
6th on the increased chance that Le Pen is elected to participate the second round of
voting on April of this year.
In the currency markets, the U.S. dollar has remained strong after gains following the U.S.
presidential election in November, but stalled after President Trump’s trade meeting with
Japan’s Prime Minister Shinzo Abe last Friday. The ICE U.S. Dollar Index, which measures
the value of the dollar against a basket of six currencies, marked daily moves of 0.5% or
greater nine times in the month of January, compared with four similar moves in October.
4. 07 PennStateEMA@gmail.com | PSEMA.org
February 13
th
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
Meanwhile, the Pound Sterling hit its highest level against the U.S. dollar January 26th
($1.2597) compared to a month prior ($1.2282); signaling some stability in what has been
a predominantly volatile period for the pound. However, the sterling could see volatility
return once formal Brexit negotiations begin.
In Monetary Policy, China’s foreign-exchange reserves dropped below the $3 trillion mark
in January, which complicates the central bank’s differing goals of curbing asset bubbles
and supporting growth without inducing a liquidity crunch. This comes as overcapacity in
commodity sectors, such as steel and coal, and the country’s high debt burden continue to
drag on Chinese growth. On the other hand, the European Central Bank had stood by its
decision to continue quantitative easing until the end of the 2017 year. Despite fresh
criticism from Germany following a near-four-year high jump in Eurozone inflation to
1.8%. The U.S. Federal Reserve is likely to continue its monetary policy of small raises in
interest rates, while major central banks from Europe to Japan will likely keep their rates
ultralow to help their sluggish economies.
Outlook: Neutral
With a tightening labor market and increased manufacturing activity, we see market
demand for energy highly probable to increase. Coupled with possible infrastructure
spending and the rolling back of regulation under the Trump administration only adds to
our optimism of greater demand. However, President Trump’s policies on trade could
depress other currencies and strengthen the U.S. dollar. Making not only U.S.
manufactured exports more expensive, but also our own exports in LNGs. Until there is
more time for trade policy to develop, our short term outlook is neutral.
5. 07 PennStateEMA@gmail.com | PSEMA.org
February 13
th
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
NOAA’s 8 – 14 Day Temperature Outlook shows a heightened probability of colder-than-
average temperatures in the Northeastern United States. Data suggests that a region
spanning from Maryland up to Maine has a 40 – 60% chance of experiencing decreased
temperatures over the next two weeks. In contrast to this expected weather, the rest of the
country is presumed to
incur hotter-than-average
temperatures. The
highest probability of
increased temperatures
is located between South
Dakota and Nebraska,
with roughly an 80%
chance. In light of these
forecasts, consumers in
the Northeastern United
Sates can be expected to
increase their home
heating usage which puts
bullish pressure on
natural gas and heating
oil. The remainder of the
country will likely
continue normal winter
heating practices which
puts neutral pressure on
the price of natural gas
and heating oil.
According to NOAA’s predicted precipitation data, the Midwest through Eastern United
States are expected to experience below average chances of rainfall. The Western region of
the US is expected to experience heightened chances of rainfall, with the highest
probability of precipitation in the bulk of California. Increased rainfall in the
6. 07 PennStateEMA@gmail.com | PSEMA.org
February 13
th
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
California region may provide water for low-cost hydropower generation, which would
result in a decrease in electricity prices for consumers. Beyond the anticipated
precipitation there are no signs of storm activity, so no market moving weather patterns
are expected.
Winter Energy Outlook
Based on the most recent
forecast of heating degree days
(provided by NOAA),
temperatures throughout March
are expected to be far colder
than last winter east of the
Rocky Mountains. It is forecasted
that the Northeast and Midwest
will be 17% colder than last
year, and the South 18% colder
than last winter. Despite an
anticipated cold winter season
compared to last year, the
eastern United States is expected
to be 3% warmer than usual in
relation to the five-year average.
Based on the information
provided consumers can expect
increases in their energy bills
across the board compared to
last winter. According to the U.S
Energy Information Administration, households heating with primarily heating oil can
expect to spend an average of $378 more than last winter, which is a 38% increase. Homes
relying on natural gas for heat can expect an increase of $116 on their heating bills, which
is a 22% increase from last winter. Despite increases in forecasted natural gas and heating
oil prices for this winter, average household heating expenditures will be more aligned
with prices similar to winters prior to last season.
7. 07 PennStateEMA@gmail.com | PSEMA.org
February 13
st
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
The US rig counts have been
steadily increasing over the
past few week as the chart
shows. Although OPEC
production cuts have been
going as planned, the US has
been producing more and
more oil. The current storage
amount is also a current high
over the last month. The
reason for this increase in
production without a
decrease in price is because
of a positive outlook on
demand. The other reason is
that since OPEC has
continued to stay committed
to their production cuts,
there is a positive outlook on
the basis of a total world oil
supply decrease. We
speculate that if these
predictions fall through, that the current price of oil will not be able to withstand the
increasing production and high supply. The current stock of crude oil and its
distillates according to the EIA is currently up 43 million barrels from the levels
exactly one year ago. Net imports for crude oil were an average of 8.5 million barrels
per day over the last four weeks which is is up 10% from last year’s levels for the
same four week period. Although US production and supply has increased over the
past month, the total global oil supplies have decreased by 1.5 million barrels per day
over the month of January.
US increased
production and
supply puts
pressure on
increasing prices.
OPEC follows
through with
supply cuts with
high supply.
1170000
1175000
1180000
1185000
1190000
1195000
1200000
1205000
1210000
Dec 16, 2016Jan 05, 2017 Jan 25, 2017 Feb 14, 2017
WEEKLY U.S. ENDING STOCKS OF
CRUDE OIL (THOUSAND BARRELS)
8. 07 PennStateEMA@gmail.com | PSEMA.org
February 13
st
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
According to economic analysis, the global demand for
crude oil has jumped over the global supply for the first time since the second
quarter of 2014. This is a critical point for crude oil prices and we may see a jump in
prices in the first half of 2017.
In cross-commodity news, the gasoline demand has been higher than expected and
has aided in the increasing crude oil price. The inventory of gasoline has decreased
by 900,000 barrels since last week. The demand of gasoline does not look to be
falling anytime soon as warmer weather in the US for the next couple of weeks will
allow for more travel.
Outlook: Bullish
Although the US has an increasing production of crude oil on top of an already very
high supply in inventories, this does not tell the full story. OPEC production cuts have
been going just as planned and 90% compliance has been achieved which seems to
be more than expected. The overall global stock of crude oil has also decreased. This
is currently playing a larger role in the price of crude oil than the US stock alone. The
global demand for crude oil is also playing a very large part in the steady increase in
crude. At the current prediction of global supply and demand, the crude oil price will
have to increase to meet a higher equilibrium price than it is currently at. Finally, the
warmer weather likely to be on the horizon for the next coming months will spark an
increase in travel and therefore create an increase in gasoline prices.
Higher than
expected
decrease in US
gasoline
consumption
cause a rise in
crude price due to
cross-commodity
help.
Lower global
supply and higher
global demand
provide a bright
future for crude oil
prices.
10. 07 PennStateEMA@gmail.com | PSEMA.org
8
Low cost, clean
natural gas used
for power
generation
Low natural gas prices
result in large volumes
used for electric power
generation
February 13
th
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
For perspective, in 2010 the total rig count, oil and gas, was approximately 1,450 units. In
that same year, the United States oil production hovered around 5.4 million barrels per day
(MMbbls/day), and the U.S. gas production was about 70 billion cubic feet of gas per day
(bcf/day). Fast forward to 2016 when the total rig count sat at just 741 units, the U.S. was
producing 9 MMbbls/day, and about 90 bcf/day. That is a 67% increase in oil production
and a 28.5% increase in gas production, keeping in mind that the rig count fell by
approximately 50%. This trend can be attributed to continuous advancements in technology
regarding subjects such as horizontal drilling, multilateral wells, and improved secondary
and tertiary recovery methods.
11. 07 PennStateEMA@gmail.com | PSEMA.org
6
Spot price
settles
The Henry Hub Spot
Price went for a ride in
late December/January,
but has since settled
back to its normal price.
Natural gas
export projects
underway
Numerous natural gas
export projects set to
account for over 50
bcf/d leaving the
country
February 13
th
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
Looking at the NYMEX prices of spot and forward month natural gas contract prices shown
below, we can see that we are currently in a contango market. The Henry Hub Natural Gas
Spot Prices have seen a big rise and fall since the November issue of the Newsletter.
Previously hovering around the low $3 range, the spot price spiked to around $3.60 per
million BTU (MMBTU), a level that has not been seen since late 2014. However, the price
then normalized back to its original level and now sits at $2.97 per MMBTU.
Looking at US natural gas exports via pipeline, US exports to Canada had a large increase of
31,088 MMSCF totaling at 74,559 MMscf while pipeline exports to Mexico lagged with a
monthly decrease of 9,539 MMscf to a total of 118,328 MMscf. The total US exports via
pipeline at 192,887 MMscf, an increase of 21,549 MMscf from the previous month.
2.00
2.50
3.00
3.50
4.00
Jun-16 Aug-16 Oct-16 Nov-16 Jan-17 Mar-17
USD
NG Foward Month Contract Prices
Spot Price NG Contract 1 Price NG Contract 2 Price
NG Contract 4 Price NG Contract 3 Price
0
50000
100000
150000
200000
250000
12-Oct 13-May 13-Nov 14-Jun 14-Dec 15-Jul 16-Jan 16-Aug 17-Mar
MMSCF
US Pipeline Exports
US NG Pipeline Exports to Mexico Total US NG Pipeline Exports US NG Pipeline Exports to Canada
12. 07 PennStateEMA@gmail.com | PSEMA.org
8
February 13
th
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
Total working natural gas storage in the Lower 48 states totaled at 2,559 Bcf as of
Februrary 3, 2017 which is 152 Bcf decrease from the EIA’s previous weekly storage report.
Per EIA storage report, the
working natural gas storage in
the following regions across
the U.S. decreased by the
following amounts: Eastern
Region - 49 bcf, Midwest
Region - 45 bcf, Mountain
Region - 9 bcf, Pacific Region -
13 bcf, South Central Region -
36 bcf. As we continue to
trudge through the winter
season, we can take note of
the significant decrease in
natural gas deliveries to
electric power consumers and
the beginning of a steep
upward trend in residential
power consumption as the
number of HDDs increases. As the year continues, it will be noteworthy to keep an eye on
industrial consumption as large bills for infrastructure improvement go through Congress.
According to the CFTC, decreses in short positions on natural gas contracts on the ICE
futures energy division decreased for producers, swap dealers and managed money for the
month of January 2017.
0.0E+00
2.0E+05
4.0E+05
6.0E+05
8.0E+05
1.0E+06
1.2E+06
1.4E+06
12-Apr 13-Aug 14-Dec 16-May 17-Sep
SCF
US NG Demand Drivers
US NG Residential Consumption
US NG Industrial Consumption
US NG Deliveries to Electric Power Consumers
Total US NG Pipeline Exports
13. 07 PennStateEMA@gmail.com | PSEMA.org
8
February 13
th
, 2017
Issue 07
The Penn State Energy Marketing Association | Market Update
Trending News
The Indian Point Nuclear Power Plant located in New York could shut down as soon as
2021. According to the Wall Street Journal, one of the two nuclear facilities closest to New
York City has a capacity of 2,000 MW. As a result, new power plants will need to be built to
replace the capacity lost from the nuclear plants and given the current prices of gas and
environmental appeals with respect to coal-fired generation, it is likley that we will see
developments in new gas powered generation plants in the NYC area in the coming years.
The Appalachian No. 1 refining district consists of West Virginia, central and
western Pennsylvania, and the Southern part of New York. The increase in production from
the Marcellus Shale has created capacity problems within the PADD 1 region. This stands
for Petroleum Administration for Defense District, and PADD 1 is the East Coast region.
From 2010 to 2016 HGL (hydrocarbon gas liquids) production has increased from 3 bcf/day
to 18 bcf/day, with essentially all growth coming from PA and WV. Without significant
infrastructure in the Northeast to transport these liquids within and out of the PADD 1
region, companies are relying on rail transportation to move their gas to market. The HGL’s
being transported by rail consist of propane, propylene, normal butane, and isobutane. As
the midstream companies are working on the pipelines necessary for continued growth, the
rail companies continue to support the remarkable growth in the Northeast region of the
United States.
