Cycle Trading

[No-Quarter]

As I see it, the NatGas story and weather forecast at the beginning of trading next week (on Tuesday!) will drive KOLD down, but only temporarily.

http://celsiusenergy.co/p/daily-commentary.html

Natural Gas Pulls Back On Profit-Taking As Near-Term Temperature Outlook Stabilizes & EIA Reports Neutral Storage Withdrawal; Season-To-Date Storage Withdrawal The Second-Largest In The Last 5 Years (For Now); Inventories Could Bottom Close To 1300 BCF This Spring; Gas Demand To Rebound Today As Colder Temperatures Shift Eastward But A Bearish Withdrawal Likely This Week

6:00 AM EDT, Friday, February 18, 2022

In its weekly Natural Gas Storage Report for February 5-11, the EIA announced Thursday morning that storage levels fell by -190 BCF. This was a slight 3 BCF larger than my -193 BCF projection but was still a solid 36 BCF bullish versus the 5-year average.

It snapped a streak of 4 straight -200 BCF or larger weekly draws, which tied it with January and February of 2014 for the longest such streak. With the withdrawal, natural gas inventories fell to 1911 BCF while the storage deficit versus the 5-year average widened to -251 BCF. The year-over-year deficit, on the other hand, slumped by 38 BCF to -438 BCF.

As has been the case during the first 6 weeks of the year, the bullishness of the withdrawal was driven by the East, Midwest, and South Central Regions, with the latter doing the heavy lifting with a massive -74 BCF withdrawal, 32 BCF bullish all on its own. In contrast, the Mountain and Pacific Regions, which saw milder conditions throughout the week, saw slightly bearish draws of -7 BCF (5-year average: -9 BCF) and -4 BCF (5-year average: -8 BCF), respectively. All five regions remain at storage deficits versus both the 5-year average and last year. With a very cold start to 2022, the South Central has regained its place at the top for both comparisons, logging a -111 BCF deficit versus the 5-year average and a -162 BCF deficit versus 2021.

Through the first 14 weeks of the traditional natural gas withdrawal season, inventories have fallen by -1707 BCF, 51 BCF bullish versus the 5-year average. It is also the second largest to-date draw in the past five years, trailing only 2017-18’s -2012 BCF after leapfrogging both 2016-17 and 2020-21 in the past two weeks. However, with a much smaller withdrawal expected this week and last year seeing the second largest draw of all time over -300 BCF, 2021-22 will fall back into third place after next week’s report. However, 2020-21 then quickly trended warmer and I expect the current year to surpass it again in late February or early March, finishing the season in second place.

Click HERE for more on the latest EIA-reported natural gas storage data.

While the withdrawal may have come in slightly below my expectations, it was a very tight number when adjusted for temperature, thanks to the combination of residual production freeze-offs, near-record LNG exports, and strong temperature-adjusted powerburn. I calculated that the adjusted imbalance versus the 5-year average came in at 5.4 BCF/day tight versus the 5-year average, the tightest since last June and the year-over-year imbalance at 4.9 BCF/day tight versus 2021, the strongest since July.

Thanks to the tightening supply/demand imbalance and especially a much colder near-term temperature outlook, I am projecting a 1301 BCF early April storage minimum. This would be a strong -334 BCF bullish versus the 5-year average and the third lowest in the last 5 years, just above 2018’s 1281 BCF. It is also my smallest projection of the season which, during a record warm December, were at one time as high as 1905 BCF. Should the forecast trend warmer or the supply/demand imbalance loosen, this projection could rise slightly but, at least right now, is very bullish heading into the Spring and Season. Click HERE for more on my long-term storage projections.

After a vicious three-session rally that sent natural gas prices spiking more than +19% this week alone, the commodity pulled back following what was largely a neutral Storage Report. The front-month March 2022 contract fell by 23 cents or 5.6% to settle at $4.49/MMBTU after briefly trading above $4.75/MMBTU in the pre-dawn hours. The pullback may have been jumpstarted by an early-morning cooling trend by the GFS model and its ensembles. However. The 12Z ECMWF remained cold and prices didn’t recover significantly.

Overall, I feel that the pullback was justified, even with a much colder late-February and early-March temperature outlook. Prices had moved higher too fast and too far over the previous three sessions in response to a cooldown in the near-term temperature outlook. As I’ve said previously, inventories finishing the year under 1500 BCF would justify a price floor of $4.00/MMBTU for Spring and Summer futures contracts, but that it would take a storage minimum under 1250 BCF to justify prices above $4.75/MMBTU which, while possible, would require an even colder outlook. For this reason, I remain cautiously bearish on the commodity at this time and am short BOIL with a downside price target of $4.25/MMBTU.

After a dismal past two days, natural gas demand will finish the work-week on a stronger note today. A powerful cold front and its associated storm system that brought more than 6 inches of snow to Kansas City, Detroit, and the southern suburbs of Chicago yesterday will clear the East Coast today. Behind the storm, highs will be 10F-15F below-average across much of the Great Lakes, Midwest, and South Central. This includes Cleveland, OH which will only see the lower 20s, Chicago, IL in the upper 20s, Nashville, TN in the lower 40s, and Jackson, MS in the lower 50s. On the other hand, rainy conditions along the immediate coast will keep temperatures mild for another day today with Washington, DC and Philadelphia, PA reaching 50F and New York City and Boston, MA the upper 40s, each 5F-10F warmer-than-normal. Conditions will also begin to swiftly warm across the northern Plains with Des Moines, IA reaching the lower 50s and Sioux Falls, SD seeing the upper 40s, both 10F-15F above-average.

Nonetheless, the swift cooldown across the Eastern and Central US will dominate with today’s forecast mean population-weighted nationwide temperature cooling by -6.3F from Thursday to 44.0F, a much more neutral +1.0F warmer-than-normal. Total Degree days (TDDs) will rise to 22.0 TDDs, the 15th most for February 17 in the last 41 years since 1981. Click HERE for more on today’s temperature and degree day outlook.

Based on this forecast and early-cycle pipeline data, I am projecting a -22 BCF/day daily natural gas storage withdrawal, 12 BCF larger than yesterday’s draw but still a slight 1 BCF bearish versus the 5-year average. For the full natural gas storage week of February 12-18 that ends today, I am projecting a -23 BCF/day daily natural gas storage withdrawal, less than 1 BCF bearish versus the 5-year average. For the full storage week of February 12-18 that ends today, I am projecting a -137 BCF withdrawal, 29 BCF bearish versus the 5-year average and a massive 187 BCF smaller than last year’s historic draw. It would be the third weakest withdrawal in the last 5 years, behind only the -111 BCF from 2018 and -75 BCF from 2017. The temperature-adjusted supply/demand imbalance for the week will come in much looser than the previous week due to stronger production and very weak temperature-adjusted powerburn on account of record wind generation and this projection may ultimately need to be revised even lower. But should a -137 BCF withdrawal verify, natural gas inventories would fall to 1774 BCF while the storage deficit versus the 5-year average would narrow to -222 BCF. The year-over-year deficit will plunge to just -217 BCF, less than half of its peak just two weeks ago. The EIA will release its official storage numbers for the week next Thursday, February 24, at 10:30 AM EDT. In the meantime, click HERE for more on my projection.

The current temperature outlook map is showing a return of cold air. I tiled the daily images of the temperature forecast maps on the below slide to show the progression of what's coming 6-10 days out.




Today we have a three-day weekend in front of us.

I am thinking by the time Tuesday arrives, the projected next cold weather mass (bottom map on the above slide) will move to the east coast, move BOIL higher, but only temporarily as March and spring will be here soon.

So, I am watching for one more dip for KOLD next week, followed by a settling higher as spring arrives. My target zone to buy on the dip is circled on the chart below. GLTY