Quote:Natural Gas Surges To New 14-Year High On Storage Concerns, Even As Production Inches Higher & Late April Outlook Moderates; Gas Demand Set To Drop Today As Temperatures Warm Ahead Of Powerful Heartland Storm System
6:00 AM EDT, Tuesday, April 12, 2022
It is 2022 and yesterday was a day ending in “-y,” which naturally meant that gas prices were destined to finish in the black. Despite building indications that milder temperatures would return across the Lower 48 by late April and a weekend bump in production, the front-month May 2022 contract soared 37 cents or 5.8% to settle at $6.64/MMBTU. The T+1 June 2022 contract kept pace with a nearly identical gain to $6.72/MMBTU. Both the December 2022 and January 2023 contracts closed above $7.00/MMBTU. It was the highest settlement for the front-month contract since November 24, 2008.
The rally came despite natural gas production climbing back above 95 BCF/day over the weekend which, coupled with continued strong net imports from Canada, pushed my calculated year-over-year gain in total supply to +5 BCF/day. With LNG exports remaining static under 13 BCF/day and exports to Mexico languishing, this has loosened calculated supply/demand imbalances, although it will take some time to see this reflected in EIA reports. Additionally, while the next 7-10 days will be unseasonably cold across the Lower 48 with a potentially historic Great Plains blizzard to boot, Monday’s computer model runs did generally trend milder for the back half of the period, especially April 22-25. As shown in the Figure to the right, after a sharp drop in daily storage injections for April 16-20, I am projecting a rapid recovery to bearish builds above +15 BCF/day by the fourth week of the month.
So why did prices rally again? Certainly, investors may be eying the upcoming spike in demand associated with a late-season arctic outbreak. However, most of the bullish sentiment is likely being driven by speculation that, even with gains in production over the next several months in response to lofty prices, it will be a case of too little, too late with inventories dangerously low heading into the next Heating Season. Personally, I believe that such sentiment is overblown and unlikely to be a reality. That said, natural gas has a storied history of overshooting, both to the upside and downside, and this seems to be no different. Prices seem destined for $7.00/MMBTU and, on their present course, I would not be surprised to see the level breached this week, if not sooner. Long term, the commodity is eventually going to correct, and correct violently. Fundamentally, I continue to feel that $5.00/MMBTU is a Fair Price and represents my downside target for the Spring and Summer.
Natural gas demand will fall today as a powerful winter storm across the Great Plains drags arctic air southward across the Rockies but, at the same time, pumps mild, sub-tropical conditions northwards across the more populous Midwest and East. Much of North and South Dakota are under Blizzard Warnings today where some areas could pick up to 20-30 inches of wind-driven snow over the next 24-48 hours. Bismarck, ND will only reach the mid-30s today while Billings, MT, behind the storm, will only reach the lower 20s, 20F to as much as 35F colder-than-normal. The chill will extend all the way to the Pacific Coast with Portland, OR in the lower 40s and Sacramento, CA near 60F, each 10F-20F colder-than-normal. However, ahead of the storm system, a strong southerly wind will transport a moist, Gulf of Mexico airmass northwards across most areas east of the Rockies. The largest anomalies will be found across the Great Plains with Oklahoma City, OK reaching the lower 80s and Topeka, KS nearing 80F. However, the Midwest will also be mild with Chicago, IL approaching 70F and Detroit, MI the mid-60s, 10F-15F above-average. Meanwhile, the densely-populated I-95 corridor will be a more modest 5F-10F warmer-than-normal, including Raleigh, NC near 80F, Washington, DC in the lower 70s, and New York City in the upper 60s.
Overall, today’s forecast mean population-weighted nationwide temperatures will warm by +3.2F from Monday to a balmy 60.9F, a new 2022 high and +4.4F warmer-than-normal. Total Degree Days (TDDs) will fall to 8.0 TDDs, the 12th fewest for April 12 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 +10 BCF/day daily natural gas storage injection, 4 BCF larger than yesterday and 4 BCF bearish versus the 5-year average. By tonight, projected Realtime natural gas inventories will rise to 1422 BCF while the storage deficit versus the 5-year average will narrow to -302 BCF. The year-over-year deficit will contract by 5 BCF to -439 BCF. Click HERE for more on today’s projected injection and Realtime inventories.
My posts are my opinion. Always trade at your own risk.