september nat gas contract making lows not seen since feb., 2004-------at that time SJT was under 20-----SJT is just a bunch of natural gas-----so why can't it go down a few points in the near term??????
Switching and demand destruction seem to have already been absorbed into the current pricing environment. From what I've seen, the pricing spread between nat gas vs crude products is obviously still favored to nat gas, but I think most of the switching that is likely to occur has already occured. Therefore, when crude likely pulls back to more balanced levels, demand for nat gas may actually fall somewhat.
Overall though, even in the face of lots of fuel switching to nat gas and a strong economy, nat gas storage numbers are on pace to end the build season at the extreme high end of the trailing 5 year average.
Total storage is currently at a healthy 2.53 Tcf-- 5.7% above the 5-year average & ~10% above last year�s level at this time. Bottom line, there's plenty of gas out there and $5.50/mcf gas is very expensive with these types of fundamental storage numbers and no terror/supply premium to be applied.
Traders are likely nervous about this last point, hence the recent weakness in nat gas and general disconnect between the frenzied crude price.
"my co-op building in Manhattan can switch from oil to NG just by flicking a switch."
Ah. That's brilliant! I suspect a number of folks will be flipping that switch this winter...but you never know. The problem is, I don't think the majority of LC/NG use in this country is 'switchable'. Though it would be a lot better if it was!
What's your impression? Do you think it's common in your area to be switchable between heating oil and NG...or does your building just have its act together?
While I do not know the extent of it, a certain amount of substitution already exists with no need for capex. For example, my co-op building in Manhattan can switch from oil to NG just by flicking a switch. Under current pricing, it's obvious that those who can switch to NG this winter will do so. This should help the ratio decline as NG prices rise.
Most folks expect the cl:ng to converge back to 6:1. Historically it's tended to oscillate around that.
But keep in mind that NG is a mostly domestic supply/demand market. CL is truly global. So there is no physical law that dictates a 6:1 ratio.
"Could be some major substitutions in future."
I keep thinking this, too, but folks are going to have to be convinced that the ratio has moved up on a permanent basis before substitutions start happening in earnest. In most cases, making that switch involves a real committment and substantial CapEx.
Traditionally the ratio has been 6:1, but recently there has been a marked divergence from that historically stable ratio --- now it is more like 8:1 and I believe that bodes well for NG demand as it is favored by those users who can switch back and forth between fuel sources.
6:1 is the traditional btu conversion from an mcf of natural gas to a bbl of average qualitiy crude. It isn't an exact conversion, more of a rough estimate.
Natural gas for U.S. consumption has diverged dramatically from crude recently due to ample supply fundamentals overwhelming the current irrational crude frenzy.
your assumption is that nat gas will remain negative in the futures mkts...well lets see, so far today, this short pos is not working out unless there was a exit postion at or close to 27.40, since stk is well above $28again...do believe stk could drop to the levels you mentioned in my belief, but it will take a lot more negative data than what u have provided thus far...given the negative info you did refer to and the fact that the stk is currently climbing back up to daily b/e, would think that this shows a lot of support...