Entelrgy

Natural gas prices surge 18 cents to $1.83/mmBtu as data point to a decline in US gas output.

Analysts at Houston-based Tudor Pickering say US gas flows stood at 88.1B cubic feet per day on Sunday, “down from 90.2bcfd on Friday,

with the Northeast accounting for 1.4bcfd, followed by Texas flows down 0.4bcfd.” The analysts caution, however,

that the decline may not last, especially as oil prices push above $30/bbl as this could lead oil and gas producers to get the commodities flowing again.

Additionally, they note weekly EIA storage this week may show another triple-digit rise as LNG demand takes a hit.

With weather-driven demand expected to decline on warming temperatures later this week, and with inventories expected to fill quickly in the weeks ahead,

natural gas futures were down in early trading Tuesday.

The June Nymex contract was off 4.5 cents to $1.781/MMBtu and are on target for their lowest closing price in more than two weeks as investors see increasing signs the commodity is starting to feel a delayed impact from coronavirus.

“The US natural gas market has become the latest victim of the coronavirus,” Price Futures’ Phil Flynn writes in a column for Fox Business.

“The shutdown of economies in Europe and Asia reduced the demand for natural gas.” Natural gas in storage in the US is at a 21% surplus to the five-year average,

and analysts say that could increase as the low-demand spring season progresses.

Against a backdrop of coronavirus-related demand destruction, expectations for milder weather later this month continued to keep the pressure on natural gas futures prices early Wednesday.

The May Nymex contract was down about 2.4 cents to $1.626/MMBtu at around 8:30 a.m. ET.

Over the past few days models have been consistent in showing moderating temperatures later this month following a stretch of colder-than-normal temperatures this week, according to Bespoke Weather Services.

“The overall theme continues to be for a tame, near-normal demand period after April 20, likely lasting through the end of the month,” Bespoke said.

Meanwhile, the market is in need of something that can tighten the supply/demand balance “in order to get any rally going at the front of the curve,” the firm said, pointing to recent Energy Information Administration (EIA) storage reports that have been “very loose.”

“It looks like we are headed for another loose number tomorrow, as demand destruction continues due to the economic shut-downs,” Bespoke said. “There is talk of some partial re-opening of things in a few weeks, but it is unclear if that will actually occur or not.”

After Tuesday’s sell-off, the prompt-month contract could establish a new low for the year by the end of the week, according to analysts at EBW Analytics Group. Tuesday’s selling was attributed in part to “a move out of energy commodities,” they said.

“Nymex crude nosedived, with the front-month contract re-testing support at $20/bbl. The May-July natural gas contracts followed crude lower, with asset allocation managers looking to move funds to sectors poised to earn more attractive returns,” the EBW analysts said.

But the demand outlook for natural gas likely played an even bigger role in the sell-off, they said.

Analysts pointed to a “growing recognition that once the current round of cold weather ends, demand for natural gas is likely to plummet, with the potential for the first triple-digit injection of the year” during the last week of April. “After yesterday’s sell-off, bulls are unlikely to return to the natural gas market soon, opening the door to significant further price declines over the next few weeks.”

As of early Wednesday, a Bloomberg survey was showing a median expectation for a 65 Bcf injection for this week’s EIA storage report, with predictions ranging from 42 Bcf to 78 Bcf.

Last year EIA recorded a 73 Bcf build for the similar week, and the five-year average is a build of 27 Bcf.

May crude oil futures were down 44 cents to $19.67/bbl at around 8:30 a.m. ET, while May RBOB gasoline was trading fractionally higher at around 72.9 cents/gal.

Against a backdrop of global economic anxiety over the coronavirus outbreak, the prospect of an early spring offered natural gas futures bulls no quarter in early trading Friday.

Following a steep 8.5-cent sell-off in the previous session, the April Nymex contract was down another 7.6 cents to $1.676/MMBtu shortly after 8:30 a.m. ET.

A loss of 22.3 gas-weighted heating degree days (gHDD) from the American model over the past 24 hours prompted forecaster DTN to adjust its latest forecast warmer heading into Friday’s trading.

Citing the DTN data, EBW Analytics Group analysts observed that forecast maps for the next four weeks “are now a sea of red, with projected degree days 20-30 gHDD below normal every week and demand falling off a cliff due to an early arrival of spring.

“With the withdrawal season rapidly drawing to a close, the effect of this shift is to nearly guarantee that end-of-season storage will be well above 1,900 Bcf,” the EBW analysts said.

“With economic activity likely to be far below normal levels over the next few months” for the world’s largest liquefied natural gas import markets, including Japan, China, South Korea and Europe, on top of “plummeting” near-term demand domestically, “prices are likely to continue to fall sharply over the next few weeks.”

Thursday’s Energy Information Administration (EIA) storage report only added to the bearishness. The EIA reported a smaller-than-expected 143 Bcf natural gas storage withdrawal for the week ending Feb. 21. That compares with a 167 Bcf draw for the similar week last year and a five-year average withdrawal of 122 Bcf.

Total working gas in storage as of Feb. 21 stood at 2,200 Bcf, 637 Bcf above year-ago levels and 179 Bcf above the five-year average, EIA said.

“A blast of cold weather through the U.S. last week pushed heating degree days higher, coming in 15% above the five-year average, and marking only the second above average recording this year,” analysts at Tudor, Pickering, Holt & Co. (TPH) said of this week’s EIA report. “Year-to-date, cumulative degree days are tracking 9% below historical norms, while cumulative draws from storage screen stronger at 5% below.”

Of course, the sell-off for natural gas coincided with further selling in oil and stock markets ahead of Friday’s market open as fears over the impact of the coronavirus outbreak continue to spread through the global economy.

“Oil prices are falling out of control as fears continue to spread that coronavirus is out of control,” Prices Futures Group analyst Phil Flynn said in a note to clients Friday. “…What will it take to restore calm to the market? At this point, the fear of the unknown is making that hard to judge.”

April crude oil futures were off $1.70 to $45.39/bbl at around 8:30 a.m. ET, while March RBOB gasoline was trading 1.8 cents lower at $1.3926/gal.

Natural gas futures were trading slightly higher early Wednesday as more disagreement arose from the major weather models overnight. January Nymex futures were up 2.1 cents to $2.285/MMBtu shortly after 8:40 a.m. ET.

The overnight Global Forecast System (GFS) extended cold trends from Tuesday, adding 20 heating degree days (HDD) to the outlook and showing a “frigid cold shot” pushing into the northern Lower 48 states next week, according to NatGasWeather.

“However, the European model emphatically disagrees and lost 5-6 HDDs compared to Tuesday data,” advertising a “quite bearish” outlook, the forecaster said. “…It seems like we’ve seen this movie before where the GFS advertises frigid cold only to reverse course and trend back milder, as it’s done twice already this December.

“Maybe the GFS will be correct this time, but the natural gas markets are likely going to want the European model to be solidly on board if they are to believe it.”

Analysts at EBW Analytics Group similarly noted mixed signals in the temperature outlook heading into Wednesday’s session.

“Big picture: on a weekly basis, the next three weeks remain milder than normal,” the EBW analysts said. Cash prices at Henry Hub have also been “extremely soft, averaging just $2.18 despite the coldest day-ahead weather so far this winter.”

Still, an unusual amount of “model instability” for the 15-day window poses risks for prices to move either way depending on how forecasts develop, according to EBW.

“Warming weakened in days 11-15, and there are signs that a bullish Greenland block might develop by day 15,” the analysts said. “Gas prices are likely to rise modestly this morning. But continued shifts in model runs this afternoon and later this week are likely to have a greater impact, potentially moving the market in either direction.”

Natural Gas Price Fundamental Daily Forecast

Natural gas futures are inching lower on Wednesday shortly after the regular session opening.

The market is also trading inside yesterday’s range, which tends to indicate investor indecision and impending volatility.

The price action is also suggests that traders are weighing late-session heat against the possibility of a large storage injection on Thursday.

At 12:13 GMT, October natural gas futures are trading $2.651, down $0.012.

Short-Term Weather Outlook

According to NatGasWeather for September 18-24, “Unseasonably strong hot high pressure continues across Texas and the South with highs of 80s to 90s for strong late season demand.

The exception will be along the Texas Coast as heavy tropical rains bring highs of mid-80s. The western and central US will be unsettled as weather systems bring showers and highs of mostly 60s and 70s with lows of 30s and 40s.

The important corridor from Chicago to New York City will be comfortable with highs of 70s to 80 for light demand. Overall, national demand easing to lighter levels as southern US heat fades.

Overall, national demand will be high across the southern US and low across the northern US, averaging out to moderate.”

Bespoke Weather Services (BWS) said, “…The balance data and continued strength in cash makes us feel there is more downside risk versus upside at these price levels.

Higher wind may ease gas burns more, and a lot of rain in Southeast Texas” could take out “a chunk of demand in the Houston area the next couple of days.

In addition, continued warmth will gradually evolve bearish as we move into the month of October.”

Storage Injections Potentially Bearish

Energy Aspects said its estimates show “stout” storage injections starting with the week ending September 27.

“While our forecasts for storage injections have shifted since mid- to late-August on the warmer forecast (and realized) weather,

our projected end-October inventory is near 3.76 Tcf, not a level that should induce gas rationing nor point to anything that suggests tight fundamentals,” the firm said in a recent note.

Daily Forecast

Technical factors could also influence the direction of the October natural gas futures contract on Wednesday.

Yesterday, sellers helped form a potentially bearish chart pattern. A trade through $2.673 will confirm the chart pattern and signal the start of a 2 to 3 day correction.

A move through $2.70 will negate the chart pattern and signal a resumption of the uptrend.

The market is also straddling a key retracement level for a third session at $2.65. Trader reaction to this level will also determine the direction of the market today.

Finally, the main trend will change to down on a trade through $2.551. This could lead to an eventual test of the short-term retracement zone at $2.440 to $2.368.

At 09:34 GMT, November natural gas futures are trading $2.554, down $0.019.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 78 billion cubic feet for the week-ended September 6.

Traders were looking for the EIA storage report for the week-ending September 6 to show another above-average build.

Total stocks now stand at 3.019 trillion cubic feet, up 393 billion cubic feet from a year ago, but 77 billion below the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for September 13 to September 19, “Unseasonably strong high pressure will dominate the southern and eastern/east-central US with highs of 80s and 90s for strong late season demand into the weekend.

However, a tropical system will track across Florida and portions of the South and Southeast this weekend and next week, easing highs into the 70s and 80s. The Northwest, Rockies, and North Plains will be comfortable to mild with highs of upper 50s to 70s for light demand.

The important corridor from Chicago to NYC will be mostly comfortable with highs of 70s to mid-80s. Overall, demand will be high across the southern US and up the East Coast and moderate-low across the rest of the US.

Daily Forecast

Technically, the main trend is up, but momentum shifted to the downside on September 10 with the formation of the closing price reversal top at $2.685 and its subsequent confirmation. A trade through $2.685 will negate the chart pattern and could signal the resumption of the uptrend. A trade through $2.551 will indicate the selling is getting stronger.

Our eventual downside target is $2.410 to $2.345.

Natural gas prices erase earlier declines to turn 0.7% higher to $2.571/mmBtu after the EIA reports a below-forecast increase in gas storage.

The data shows inventories climbed by 78bcft last week, versus consensus expectations of an 83-bcf rise, suggesting demand from a southern heat wave may have been higher than earlier thought.

Total gas in storage now stands at 3.019 tcf, which is 15% above last year at this time, but 3% below the five-year average.

The data puts prices back within striking distance of a three-month high of $2.5850/mmBtu reached Monday

Currently the prompt month NG contract is trading at $2.569, up 1.7 cents.

Nearby natural gas futures soared on Monday with seasonal buying and a hotter-trending forecast fueling a massive short-covering rally at the start of the week.

According to Bespoke Weather Services (BWS), the weather outlook over the weekend “jumped solidly hotter” by showing a stronger and longer lasting upper level ridge over the eastern half of the country this week and next.

On Monday, October natural gas settled at $2.585, up $0.089 or +3.57%. 

Bespoke went on to say that the upcoming conditions should result in “well above normal” cooling degree day totals east of the Rockies.

“The intensity of southern heat starts to wane this week, while increasing up into the Midwest and over into the Mid-Atlantic,”

Bespoke said. “We do, climatology-wise, start picking up some minor” heating degree days further north “after mid-September, though they have little impact this early in the season.”

“Our view has been that the higher wind and gradually lowering temperatures (albeit still well above normal) in the South could allow cash to weaken somewhat, with less hindrance on storage refills,

but the hotter forecast makes that less certain, so we are in wait-and-see mode this morning,” Bespoke said.

Technically, the main trend is up according to the daily swing chart. The current rally has wiped out all of this summer’s highs with the market closing at its highest level since May 30.

On Monday, the rally stopped at $2.608. Taking out this level will signal a resumption of the uptrend with major targets the May 20 top at $2.770, followed by the April 10 top at $2.861 and the March 19 main top at $3.000.

Daily Forecast

With the exception of the weather, the market continues to be well-supplied so it won’t go up forever. However, if the heat comes in as forecast, the winter heating season will start with smaller supply than recently seen.

Short squeezes typically last until the weakest short is taken out, then the big hedgers come in and the market heads back down.

Additionally, these types of rallies usually end ugly, which means if long, have an exit strategy in place because once it turns lower, it’s not likely to look back. Also start preparing for a dramatic closing price reversal top.

Natural gas finished sharply higher last week, but contrary to some beliefs, the rally was fueled by massive short-covering or a “short-squeeze”, if you will, and not be the threat of Hurricane Dorian.

Some say that while the hurricane was sitting off the coast of Florida, it was actually keeping a lid on prices because of its threat to demand, and when it became clear that the hurricane would move north,
prices exploded to the upside as shorts scrambled to liquidate positions.  Last week, October natural gas settled at $2.496, up $0.211 or +9.23%.
Currently, the October natural gas contract is trading at $2.57, up 8 cents.
Seasonality also played a role in producing the huge rally. Natural gas prices usually start to move higher around Labor Day, or shortly after the expiration of the September futures contract.
This year, the contract expired with a record amount of shorts hold positions and they had to go somewhere once the futures contract went off the board.
Short-sellers could have rolled over into the October futures contract, hoping to press the market even lower. However, many decided to buy back positions, setting in motion the short-covering rally that continued to feed on itself all week.
Prices rallied despite forecasters and analysts expressing skepticism as to whether the fundamentals supported the large gains.
With open interest falling as prices rose sharply, Powerhouse LLC President Elaine Levin described the move as a “classic short-covering rally.”
“I think the market got very, very oversold,” Levin told NGI. “It looked like some of the specs were about as short as they’d been in a long time.”
“Fundamentally, there’s a lot of gas around, but even bear markets have corrections,” Levin said. “This is the start of one. The question it does it turn into something more substantial.”
NatGasWeather analysts justified the rally to some extent by saying the fundamentals side may have offered a few reasons for the move. “Catalysts that could have aided gains,”
including new liquefied natural gas (LNG) exports, coming online and hotter trends in the forecast, NatGasWeather said Friday.

Short-Term Weather Outlook

According to NatGasWeather for September 7 to September 13, “Comfortable conditions continue across the Midwest & Northeast with highs of upper 60s to 80s for light demand.
The southern US will be hot with highs of 90s and 100s as high pressure rules for strong demand. Hurricane Dorian will bring showers to the Mid-Atlantic and Northeast Coast the next few days before exiting.
The West will cool this weekend into next week, while the rest of the country remains warmer versus normal. Overall, demand will be high across the southern US and moderate to low across the northern US.