Wednesday, September 08, 2021 at 5:50PM
The unstoppable natural gas rally continues, even finding a way to hit another gear in today's session, as prompt month prices soared more than 30 cents, even touching the $5.00 level a couple of times. This was the highest level prompt month has traded since February 2014, in the midst of the infamous "polar vortex" winter. What was the driver of today's rally? We have discussed previously the supply problem we have in the current natural gas market, and this has only been exacerbated in the wake of Hurricane Ida, as it appears Gulf of Mexico production may be offline much longer than originally anticipated. While there is not nearly as much production out of the Gulf as there once was, in this environment, every bcf counts as we march toward the winter season. With this reduced production, we are producing *less* now than we were producing in the wake of the February freeze. Data courtesy of Criterion Research, LLC. As seen, we are now under last year's production levels, and well under 2019's levels. Of course, this is only part of the fundamentals story. With increased exports, total supply (production + imports - exports) has been running significantly under levels from the last couple of years. This data also courtesy of Criterion Research, LLC. Simply put, this is unsustainable, as, when accounting for demand as well, it puts us on a path toward end-of-season storage levels under 3.5 tcf, well under the 5-year average, which is rather precarious, heading into winter with such a supply deficit. Speaking of demand, weather, of course, is a key component, and forecasts have warmed solidly over the last week or so, with projected demand over the next 15 days running above normal levels, measured by Gas-Weighted Degree Days (GWDDs). Now, we are inching closer to the time when warmth becomes bearish, as orange / red maps in three to four weeks will mean below normal demand, but we are not quite there yet. Needless to say, once to the winter months, weather's importance in the natural gas market will be even more elevated than usual, as the difference for natural gas prices between a warm and cold winter can be measured in dollars with this fundamental backdrop. If you are an active natural gas trader, having access not only to weather data, but top-notch interpretation and predictions stemming from years of weather and market experience will be crucial. Our reports are designed to satisfy such a need. Sign up for a 10-day FREE trial here to take a closer look at our suite of products, and get on board before the beginning of what will be a very active season.
Saturday, August 21, 2021 at 1:52PM
Since reaching a high of around $4.20 in prompt month pricing, natural gas prices have been in a downward trend, with the prompt month September contract falling as low as $3.75 briefly this week, before pushing back a little higher, ending the week near the $3.85 level. We had warned clients that some selling pressure was possible, as this week's EIA report was likely to reflect much looser supply / demand balances than we had seen in the last few months. This is exactly what happened, as the report showed a 42 bcf build for the week ending 8/13 (46 bcf was the official increase, but 4 bcf was due to a reclassification, making the true build 42 bcf). This was quite high, considering that it was the hottest week of summer, at just over 90 GWDDs. When looking the storage builds vs GWDDs, we find this week's data point coming in above the trend lines of the last three years. If the balance reflected in this report were to be extrapolated forward, there would be little reason for concern as far as storage levels, but it is likely that this number will be revealed to be an anomaly, with re-tightening expected over the next couple of weeks, as this week's report was inflated in large part due to very high wind generation, which has since subsided. Supply levels remain much lower than they were at this time in both 2019 and 2020, thanks to high export levels, and no production growth over the last several months. Data courtesy of Criterion Research, LLC. Weather forecasts have turned hotter recently, as well, with the week ending 8/27 sneaking to potentially a record level in terms of GWDD totals for time of year. With supply / demand balances showing signs of re-tightening, and no material gains in production, so far, plus hotter weather on the way, one could make the case for a move back higher in prices as we head into next week's expiration of the September contract, as projected storage levels for the end of injection season are not yet high enough to generate much comfort. Obviously, one must be very nimble in this market, however, as data can, and often does change. This is where our daily reports become invaluable, as we not only present up-to-date weather and fundamentals data, but interpret what it all means in terms of directing price action, thanks to our expertise in both weather forecasting and fundamentals analysis. Sign up for a 10-day FREE trial here to take a look at all of the products we offer to keep the active trader in-touch, and ahead of potential market moves.