Views on commodities and energy
The spread between front-month oil futures and contracts for later delivery on the New York Mercantile Exchange (see Fig. 1) has widened dramatically this month. (See Fig. 2)The widening contango frequently portends a rise in inventories. For example, in Fig. 3, it can be seen that when the discount for fronth-month crude to second-month crude widened to near $4 a barrel earlier this year, inventories jumped to 19-year highs. The relationship between inventories and the outright futures price can be seen in Fig. 4.
The number of rigs drilling in Western Canada in March has fallen to the lowest level for this time of year in more than seven years. Drilling could fall further if storage fills this summer and Canada’s high cost natural gas producers are unable to find a buyer for their gas and shut in production.
– Scott Haggett in Calgary
The number of rigs drilling for natural gas in the United States fell below 1,000 last week for the first time in nearly five years, according to Baker Hughes Inc. The drop comes as prices for the fuel continue to fall.
The current gas rig total of 970 is the lowest number of gas rigs since March 19, 2004, when there were 963 gas rigs operating.