Q.: With oil prices going up on the last day of October could you suggest what are your expectations regarding the Brent prices for November, there are speculations that it will hit far above $60 per barrel based on Saudi Arabia and Russia willingness to support oil output cut at the next OPEC meeting?
D.G.: Although Saudi Arabia and Russia are willing to continue support of oil output reduction and global inventories have decreased somewhat, I am not convinced of the necessary demand drivers are in place to soak up the current levels of output and that the production cuts will be maintained by all OPEC members. I am not looking for a major rally in Brent in November. The challenges for this market are to get a close beyond are $65, $68, and $70 a barrel within the next month.
Q.: Do you see the natural gas as a dangerous competitor for oil, which can overtake it by 2034 according some forecasts?
D.G.: In the United States, I would expect the demand for natural gas in the production of electricity and in the transportation sector to continue to increase and will be competition for oil consumption. To increase the use of natural gas for transportation, a distribution system needs to be put in place similar to what you would see in Canada or Australia and some parts of Europe. It is also important to keep in mind that the use of natural gas can be changed in an instant through increased efficiency of electrical vehicles, political actions, geopolitical pressures on supply and demand and its relationship to renewable forms of energy.
Q.: What will happen with gas prices in November?
D.G.: Natural gas prices are approaching the $2.90 MMBtu to $2.85 MMBtu levels where the expectation is that buyers would find these levels attractive. If buyers are indeed present at these levels, the anticipation is that natural gas will close above $3.10 MMBtu by the end of November.
Q.: US Energy Regulator recently claimed that coal is more reliable than Natural Gas, how this statement has affected the interrelations between coal and gas?
D.G.: Each form of energy has its limitations. Natural gas supply could be depleted in times of high demand in the production of electricity. Coal fired utilities, during the polar vortex in 2014, had coal piles, control and sensor equipment and conveyor systems freeze creating challenges for its use in the production of electricity. Natural gas has some advantages, its prices are low, it burns 60% cleaner than coal and in the United States presently we produce more electricity with natural gas than we do with coal.
I do not think it’s a good idea to rely only on one form of energy for electricity production. For power grid stability and reliability it is important to have three months or more of standby supply to maintain the stability of our electrical distribution system.
Q.: And what is your forecast for the next month with heating season in tact?
D.G.: With the weather changes that we’ve seen in the United States, the demand for energy consumption is truly unknown. As a trader, I am looking out for the opportunities the price action of our energy complex will provide.
Q.: What do you think about potential of LNG, can it overtake the market on a global level? Can you comment on current prices of LNG?
D.G.: I think the growth potential for LNG is tremendous. The US ability to now export energy products, the building out of LNG facilities on the US coasts, the price differential between US versus Europe and Asia LNG prices creates the drivers for growth. European and Asian LNG can be two times or more the US LNG price. I do not expect that ratio to change much in the near future. However, as US LNG distribution grows and adds additional global LNG supply the spread differential is expected to tighten.
Dan Gramza is President of Gramza Capital Management Inc. and DMG Advisors, LLC. He provides daily market updates from around the globe on subjects ranging from the Nasdaq and currencies to crude oil and grains at www.dangramza.com .