Commodities Corner: Natural gas leads commodity gainers in November, but oil prices suffer the biggest losses

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Natural gas was best performing commodity in November, defying overall losses in the energy sector that saw crude-oil prices drop by more than 20% for the month.

An increase in natural-gas prices isn’t all that surprising given that demand for the heating fuel tends to increase as temperatures drop toward the end of the year, but the climb in natural gas was impressive, with futures prices climbing by roughly 41% for the month.

“Frigid weather, both actual and forecasted, for a large part of the U.S.,” along record domestic natural-gas exports were among the reasons for the price climb, said Will Rhind, chief executive officer of exchange-traded fund issuer GraniteShares.

Total U.S. supplies of natural gas in storage also stand at 3.054 trillion cubic feet as of the week ended Nov. 23—that’s down about 19% from the five-year average.

Against that backdrop, futures prices for the commodity NGF19, -0.13%  settled at $4.837 per million British thermal units on Nov. 14, the highest finish for a front-month contract since Feb. 26, 2014.

Read: Natural-gas prices booked the largest daily percentage gain in 14 years, up 18%

The next trading day, however, prices saw their biggest one-day percentage loss in more than 15 years.

U.S. natural-gas tight supplies have been tight, but production is at or near record highs, according to Rhind. “Provided there is no hiccup in U.S. natural-gas production, inventory levels will likely rise as winter fades into spring, possibly pushing natural-gas prices lower.

All the while, prices for both U.S. CLF9, -1.42% and global benchmark LCOG9, -1.40%  crude oil have fallen by about 22% this month, but have to potential to move up in the weeks and months ahead.

Rhind attributed the decline to record production in the U.S., Saudi Arabia and Russia, U.S. waivers for eight countries on Iran sanctions and concerns of “weaker global… economic growth [which] diminished oil demand expectations.” U.S. crude supplies have also climbed for 10 weeks in a row.

But it seems likely Saudi Arabia will not repeat mistakes made in 2014-2016, where it kept production high to maintain market share while driving oil prices to extremely low levels,” said Rhind.

Saudi Arabia, along with its fellow members of the Organization of the Petroleum Exporting Countries, and some non-members such as Russia, will meet on Dec. 6. It “seems likely” that OPEC and Russia will announce production cutbacks, helping to push oil prices higher, Rhind said.

See: Here’s what’s at stake in the oil market when OPEC and Russia meet next week

Also read: Here’s why Russia may still be reluctant to go along with a Saudi-led cut in oil output

Rhind also pointed out that the Iran sanctions waivers are temporary. The eventual removal of the waivers will see lower supply from Iran and also help lead to higher prices for oil.

Overall, however, the commodities sector declined in November. Month to date as of Friday, the Bloomberg Commodity Index BCOM, -0.09% which tracks 22 commodity futures contracts, was down about 0.8% and the S&P GSCI Index Total Return SPGSCITR, -0.39% an index that tracks 24 commodities, has fallen around 11%.

Among other big commodity movers in the month of November, supply concerns contributed to a more than 15% rise in lean hog prices LHG9, +0.19%  and a nearly 8% climb for palladium PAH9, -0.36%

“Swine fever breakout in China is the main reason hog prices have increased, as China is the largest consumer of pork,” said Rhind. “At this point price direction is dependent on how the swine fever affects supply.”

Read: Hog prices poised to soar as deadly swine disease emerges in China

Meanwhile, palladium, which is used in catalytic converters for gasoline engines, saw strong automobile manufacturer demand, he said. Palladium futures hit a record settlement of $1,154.60 an ounce on Nov. 16.

Read: Palladium may soon be worth more th an gold

Going forward, palladium prices are “likely to depend on the strength of the global economy in general and in China in particular, especially with respect to auto production,” said Rhind.

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