The April natural gas exchange contract had an impressive rally yesterday, rising to $3.927 on the day, up $0.118. As we mentioned two weeks ago, the paradigm usually shifts in the spring time to more technical issues and away from the fundamental aspects of this market. The natural gas market has tested this $3.80 area over the last two weeks and seemed to not be able to break lower. So it seems the folks that were bearish or hoping for lower prices are a major crossroads in that, it would be unwise to sponsor more risk capital at these levels thinking the market has more reward in going lower or just purchasing back their short or previously sold wholesale contracts thus causing the market to rise higher as we experienced yesterday. So the question becomes how much can the natural gas market rise under this phenomenon called “short covering”. Well, there is a record amount of open interest as we have been discussing in this market and everyone in the market believes that these folks are short meaning hoping for lower prices. So when they decide it’s time to get out this market, watch out.
On the Middle East front, the Libyan situation seems to have not changed much from yesterday with fighting for territory and strategic positions between pro-government forces and the rebels continuing. Yesterday there were some rumors that Ghadafi was looking for an exit strategy out this civil crisis; however, the rebel forces denied any discussions with the regime. Some sources have indicated that the rebels also said that they would not pursue Ghadafi criminally if he resigns and leaves Libya. NATO appears to be mulling over options including military options while OPEC has indicated that the situation in Libya does not warrant a hike in oil production and further said that there is risk of a glut of crude oil supplies if some OPEC producers over-react to the current situation. OPEC has indicated that they do not plan on holding any emergency meetings over this crisis.
On the renewable front, the rise in oil prices sparked by unrest in the Middle East is not the first time to affect the prices of crude oil and its following impact to North America. Traditionally, higher prices have prompted calls for energy independence through other avenues of alternative energy. But skeptics say such calls amount to little more than talk in a nation heavily dependent on cheap foreign oil. The latest increase in U.S. fuel prices was driven by unrest in the Middle East. In the past, Americans have faced higher energy costs following hurricanes that disrupted oil supplies; after major oil spills; or during energy embargoes by the OPEC oil cartel. Each spike focused attention on America's dependence on foreign oil, however always tempered by lower oil prices that have shifted the focus off of renewable energy.
Thomas Wallin, president of Energy Intelligence, an energy information company, says few people have noticed that the Obama administration devoted more than $80 billion towards alternative energy research and energy efficiency as part of the 2009 Recovery Act. The 2009 Recovery Act that funded President Obama's energy initiatives has expired. And the Republican-controlled House of Representatives is trying to rein in government spending. "There's been a lot of plans and a lot of talk. And then, when things get easier, we're suddenly not spending the money in that way; we're not pushing those programs the way we were." As a result, if the past is any indication, Americans will likely rely on foreign oil until permanently higher oil prices force them to find alternative sources of energy.