July Natural Gas Flirts with $3 Again Ahead of Storage Report
8:54 AM
models continue to intensify heat forecast for the end of June and early July
Temperatures cooled off now in the Upper Midwest and cooling spreads south:
Highs days 3-7 shows pleasant temps, then warming back up.
Heat really builds with week 2 dome.
Last 6Z GFS:
gfs_namer_312_200_wnd_ht | gfs_namer_312_500_vort_ht |
gfs_namer_312_1000_500_thick | gfs_namer_312_850_temp_ht |
Late Week 2 heat anomolies
CFS week 3 really heats things up but then much cooler in week 4
EIA storage report +91 bcf..........bearish. More than the market expected. Spike down to close to the lows after the release.
Sustained heat in extended still bullish. Low storage still bullish. Seasonals bearish from now thru July.
http://ir.eia.gov/ngs/ngs.html
Working gas in underground storage, Lower 48 states Summary text CSV JSN | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Historical Comparisons | |||||||||||||||||||||||||
Stocks billion cubic feet (Bcf) | Year ago (06/15/17) | 5-year average (2013-17) | |||||||||||||||||||||||
Region | 06/15/18 | 06/08/18 | net change | implied flow | Bcf | % change | Bcf | % change | |||||||||||||||||
East | 406 | 377 | 29 | 29 | 510 | -20.4 | 518 | -21.6 | |||||||||||||||||
Midwest | 401 | 372 | 29 | 29 | 653 | -38.6 | 560 | -28.4 | |||||||||||||||||
Mountain | 127 | 125 | 2 | 2 | 181 | -29.8 | 155 | -18.1 | |||||||||||||||||
Pacific | 246 | 239 | 7 | 7 | 280 | -12.1 | 294 | -16.3 | |||||||||||||||||
South Central | 824 | 800 | 24 | 24 | 1,137 | -27.5 | 976 | -15.6 | |||||||||||||||||
Salt | 258 | 252 | 6 | 6 | 344 | -25.0 | 289 | -10.7 | |||||||||||||||||
Nonsalt | 566 | 547 | 19 | 19 | 793 | -28.6 | 687 | -17.6 | |||||||||||||||||
Total | 2,004 | 1,913 | 91 | 91 | 2,761 | -27.4 | 2,503 | -19.9 | |||||||||||||||||
The period below, ended last Friday was used for the EIA number. That's a pretty big (bearish #) injection considering the amount of heat we experienced. ..........though the intense heat was not in the high population centers of the East, Southeast and Midwest.
NG gas just took out the lows from the bearish EIA number.
The late week 1 and week 2 forecast is extremely bullish but the market, as it often does on Thursday's is reacting to the EIA number.
If the weather ever turned sharply cooler(bearish) ng would collapse lower.
gfs_namer_264_200_wnd_ht | gfs_namer_264_500_vort_ht |
gfs_namer_264_1000_500_thick | gfs_namer_264_850_temp_ht |
I posted this yesterday (today's update is below this copy of yesterday's):
"On a CDD equivalent basis at this time of year, a +84 would be:
- ~20-25 more bearish than 2017 and 2016, both of which had far more storage
- pretty comparable to 2015 and 2013
- ~20-25 more bullish than 2014, which at the time was having a very long string of 100+ injections
Based on the above, I'd call a +84 ~4-5 bcf looser than the average supply/demand balance of the last 5 years near the same time of year (late spring/early summer). Assuming about the same # of CDDs/HDDs for the next 21 weeks as the average CDDs/HDDs of the last 5 years and considering the current 507 bcf deficit to the 5 year average, the next 21 weeks will need to average 24 bcf/week larger than the 5 year average to get 11/2/18 storage to the 5 year average. So, the current supply/demand balance is nowhere near that."
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TODAY'S UPDATE: The actual was +91 rather than +84. Mike win this week with his +87 vs my +86. Congrats!
Now, I'm going to take what I wrote yesterday in relation to the average DJ guess of +84 and modify it to reflect on a +91 instead:
On a CDD equivalent basis at this time of year, the +91 is:
- Around 27-32 more bearish than 2017 and 2016, both of which had far more storage
- Around 7 more bearish than 2015 and 2013
- Around 13-18 more bullish than 2014, which at the time was having a very long string of 100+ injections
Based on the above, I'm calling the +91 about 11-12 bcf looser than the average supply/demand balance of the last 5 years near the same time of year (late spring/early summer).
With the bearish +91, the deficit vs the 5 year average shrunk slightly from 507 to 499. There are now 20 weeks to get to 11/2/18. Considering the current 499 deficit to the 5 year average, the next 20 weeks will need to average 25 bcf/week larger than the 5 year average to get 11/2/18 storage to the 5 year average. So, assuming near the 5 year average for weather, the current supply/demand balance, even just based on today's bearish report, alone, is still nowhere near that as 11/2/18 would come in near 270 lower than the 5 year average or near 3,559. That would actually be slightly lower than the 5 year minimum of 3,582.
Terrific analysis Larry.
I think that we get even looser with time. There are several projects that are ready to increase gas production, the market price is decent, the market NEEDS as much gas as possible and very high residential demand can't last forever.
We have another period of unusually high CDD demand coming up, which will just make it tougher to get to the 5 year average later this year...........making it even more imperative to ramp up supplies as soon as possible.
Considering how much heat is coming up and storage this low its interesting that prices are LOWER for the week. The market obviously recognizes how much supply lies ahead.
However, increasing supplies can only come to the rescue to close the storage gap over an extended period. If we are hit with extreme heat thru July, for instance and actually increase the storage gap, then it becomes almost impossible to get to the 5 year average without some immediate help from the weather turning sharply cooler(lets assume that it doesn't just for this example) or supplies are really going to have to ramp up.
Often, the best way to accomplish that is with higher prices. Considering how extreme the residential demand has been the last several months, ng prices have been pretty tame.
Amazing that with so much heat and low storage that we are below $3 and lower than where we closed last week. Seasonals turn very weak here thru July, so its usually a bad time of year to be long natural gas.
Last Sunday Night had a gap and crap................then strong reversal lower.
We gapped higher than Fridays highest price, then filled the gap and closed sharply lower. This was mostly from temperatures being cooler for around a 5-6 day period in the middle of the forecast............but with intense heat still early this week and maybe even more intense heat later in week 2.
It shows how easily we can drop fast if the forecast is not wall to wall intense heat.
When it does have increasing intense heat, we claw our way back. We managed to top $3 again early today on that but the bearish storage report poured a bunch of cold water on that rally.
We are below $3 at the moment(because of the bearish EIA report). If forecasts overnight get hotter again, I would think that we will be above $3 on Friday.
I think the biggest $s/contract risk to having a position over the weekend would be if the maps turned sharply colder. There is an enormous amount of intense heat in the forecast right now. Adding more will cause prices to go higher but going from Intense heat to more intense heat is less of a change than Intense heat to much cooler.
But storage is low and in markets like that, reactions can be amplified.
Another thing to consider is that we don't have to get to the 5 year average at the end of the injection season. If we don't make it, the supply side will still be gushing into the drawdown season and cause drawdowns to be smaller.
In other words, the market will not be recalculating how much bigger the injections must be every week to get to the 5 year average by the end of the injection season but, instead will just be adding how many more weeks into the withdrawal season it will take to happen..........but with the assumption that it WILL happen because the fundamentals/dynamics, in the absence of extreme weather(which the market knows won't last forever), say so.