Written by Sumit Roy  |

February 17, 2012

Week In Review: NatGas Top Gainer, WTI Outperforms Brent, Copper Retreats

Details

We examine the latest developments in commodity markets and the week's performance.

The broad-based rally in financial markets continued this past week as traders grew increasingly optimistic about the health of the global economy. Precious metals lagged as safe-haven demand receded, but losses were kept in check by overall strong fundamentals. Energy outperformed, as both oil and natural gas rallied on supply concerns.

Macroeconomic Highlights

The data front was relatively quiet, with little in the way of major releases. Notably, however, the number of filings for unemployment claims in the United States fell to 348K last week, the lowest level since March 2008, indicating an improving labor market.

U.S. stocks continued to advance. The S&P 500 rose 1.3 percent on the week to 1363, a nine-month high.

Commodity Wrap

• Natural gas was the best performing commodity of the week. Encana, a major producer of the fuel, announced that it would immediately cut its output by 250 mmcf/d in response to low prices. The company said that reduced investment would lead to an eventual further decline in output, totaling 600 mmcf/d.
  
  Encana’s move comes on the heels of similar moves by Chesapeake Energy and ConocoPhillips, which shut-in 500 mmcf/d and 100 mmcf/d, respectively. Those companies and many others have also significantly reduced their investments in dry natural gas drilling, but the consequence on overall output will not be known for months.

  
  According to Baker Hughes, the number of rigs drilling for natural gas fell by 4 last week to 716. That’s the lowest level since Oct. 2009. Meanwhile, inventories in the U.S. are a whopping 817 bcf above the year ago level and 765 bcf above the 5-year average, according to the EIA.
  
  The next level of resistance for natural prices is near January’s high at $2.84, a break of that level would likely lead to a spike to the low-$3 area.

NATURAL GAS

• WTI outperformed Brent this week, but both crude oil benchmarks put in respectable gains. Indeed, Brent hit an 8-month high above $120, though prices have since come off just slightly. Persistent geopolitical concerns related to Iran, South Sudan, Syria and now Yemen are fueling the advance.
  
  Nevertheless, OPEC supply is at the highest levels since 2008 and demand growth has weakened, according to the latest figures from the International Energy Agency. See our latest Crude Oil Report to see how bullish technicals and bearish fundamentals are creating a mixed outlook for the commodity.

BRENT CRUDE OIL