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Energy Brief for Nov 30

Price Overview

Despite the heating up of geopolitical risk in the Middle East following the assassination of a leading Iranian nuclear scientist and the meeting by OPEC members today, the market traded on the defensive.  Ministers appeared to reach a consensus on the need to extend existing oil production cuts for three months, but uncertainty regarding the position of participants outside the group, such as Russia, remained in the background.  A full meeting of OPEC+ is scheduled for tomorrow, when the rolling over of current output cuts will be discussed.  Russia appears to want small incremental increases in output in the first quarter.  The recent increase in prices has taken values back up to acceptable levels by which members see a way to soften the impact that price weakness has had on national budgets in many countries particularly Russia, Iraq and Nigeria. On the other hand there remains a fear that prices much higher than current levels will merely encourage US producers to expand production in shale areas.  The delicate balance between the two forces will likely be an overriding consideration at the full conference tomorrow.

Nat Gas Chart 11 30

Natural Gas

Prices have settled into a range over the last week as the January contract has traded between 2.80-3.00.  LNG remains the main factor supporting the market, with terminals running near current capacity  above 10 bcf/d.  Cold temperatures in Europe have helped support overseas LNG prices as US exports look to remain elevated for the foreseeable future.  The missing link remains weather, as we exit a November that came in well below normal in terms of heating demand.  With temperatures beginning to trend toward normal, the withdrawl season may finally get underway in the next few weeks.  A near term jump in HDD expectations supported the market early today, but a return of above normal temperatures in the back end of the two week forecasts kept the rally in check.  Prices tested the 3.00 area again before pulling back to settle higher by 4 cents at 2.882.

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Charts Courtesy of DTN Prophet X, EIA, Reuters

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