Monday, April 18, 2022 7:37:59 AM
Re: stiv post# 2114
Natural Gas Vaults To Fresh 13-Year High After Smaller-Than-Expected EIA Storage Injection; Gas Prices Gap Up Over The Weekend On Another Potential Late-April Cold Snap Even As Supply Rises & Fundamentals Loosen; Small Storage Withdrawal Possible Today But Demand Set To Fall Sharply Through The End Of The Week
6:00 AM EDT, Monday, April 18, 2022
Natural gas prices surged on Thursday heading into the long holiday in the wake of the EIA’s weekly Storage Report.
For the period of April 2-8, the EIA announced that inventories rose by just +15 BCF, a solid 18 BCF bullish versus the 5-year average, 8 BCF below my +23 BCF projection, and at the lower range of consensus analyst expectations. The bullishness of the injection was fueled by strong withdrawals in the East (-12 BCF) and Midwest (-3 BCF) that more than compensated for a bearish +28 BCF injection in the South Central Region. With the small injection, inventories rose to just 1397 BCF while the deficit versus the 5-year average widened to -303 BCF and the year-over-year deficit jumped to -431 BCF. All five regions remain at sizable deficits versus both the 5-year average and 2021, as shown in the Figure to the right. This was undoubtedly a bullish report and suggested that the market may be a bit tighter than pipeline and powergrid data has suggested. With an already exuberantly bullish tailwind, it was not surprising to see prices vault higher on the news. The front-month May 2022 contract gained 30 cents or 4.2% to close at a fresh 13-year high of $7.30/MMBTU. Prices were up a massive +16.4% during the 4-day week, the commodity’s fifth straight weekly gain. Prices are now up an enormous +167% year-over-year.
Over the weekend, natural gas production showed some signs of strength, climbing over 95 BCF/day for both days while net imports from Canada pushed total natural gas supply over +101 BCF, near 2022 highs and up more than 6 BCF/day from last year. At the same time, export demand remains rather soft with LNG feedgas demand holding under 13 BCF/day while Corpus Christi continues to undergo maintenance and exports to Mexico fell under 5 BCF/day yesterday. On the other hand, the near-term temperature outlook did trend colder yet again with both the GFS and ECMWF converging on another shot of colder-than-normal temperatures for the April 26-May 1 period. As of Sunday evening, for the April 18-May 1 period, my Consensus Model—which integrates a performance-based average of GFS OP, GFS ENS, and ECWMF ENS data—was calling for 185 GWDDs, third most for the period in the last 5 years and only 3 GWDDs behind 2021 for the 5-year high. During the shoulder season, this cooldown won’t result in that significant of a gain in natural gas demand compared to during the heart of the Heating Season but it is just another tailwind for natural gas. It therefore wasn’t a huge surprise when gas prices again gapped up Sunday evening, trading up more than 3% to above $7.50/MMBTU. As I’ve written before, I do not believe that $7.00/MMBTU is justified based on current fundamentals, nor even $6.00/MMBTU. Yes, inventories are low. But, a loosening domestic supply/demand deficit, collapsing European storage deficit as Russian gas volumes have continued unabated, and rising rig count all could become bearish headwinds over the next several months. Once temperatures return to more seasonable levels, I expect to see a season contraction of the storage deficit. Natural gas has a long history of over- and under-shooting its fundamentals during both bull and bear markets and this seems to be no exception. It would therefore not surprise me to see gas prices continue to spike, perhaps as high as $8.00/MMBTU if not higher. However, when the pullback comes, it will be swift and vicious. I am maintaining a $5.00/MMBTU 3-4 month downside price target.
Over the weekend, natural gas demand surged as a very late-season arctic blast expanded south and eastward. After a +4 BCF/day daily storage injection on Friday, I projected a +4 BCF/day build on Saturday followed by an exceptional -1 BCF/day withdrawal yesterday, nearly 9 BCF bullish versus the 5-year average +7.5 BCF/day. Look for gas demand to hold nearly steady today as unseasonably chilly temperatures dominate most areas east of the Rockies. The largest anomalies will be found across the Mid-Atlantic and Ohio Valley today as a storm system bring a cold rain and even mountain snows to the region. Columbus, OH will only reach the mid-40s, Washington, DC the upper 40s, and Charlotte, NCthe mid-5s, each around 20F colder-than-normal. It will also be unseasonably cool across the Midwest and northern Plains with Chicago, IL only topping out in the lower 40s, Minneapolis, MN near 40F, and Fargo, ND in the mid-30s, each 15F-20F below-average. Warmer-than-normal readings will be largely restricted to the Desert Southwest where Phoenix, AZ, Las Vegas, NV, and El Paso, TX will all see the 90s, around 10F above-average.
Overall, today’s forecast mean population-weighted nationwide temperature will cool another -2.3F from Sunday to just 53.0F, a chilly -5.2F colder-than-normal. Total Degree Days (TDDs) will rise to 15.4 TDDs, the second most for April 18 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 -1 BCF/day daily natural gas storage withdrawal, roughly unchanged from yesterday and 9 BCF bullish versus the 5-year average. By tonight, projected Realtime natural gas inventories will fall to 1439 BCF while the storage deficit versus the 5-year average will widen to -326 BCF. The year-over-year deficit will grow by a more modest 3 BCF to -448 BCF. Click HERE for more on today’s projected withdrawal and Realtime inventories.
For the remainder of the week, natural gas demand will rapidly fall as temperatures rapidly moderate across the Lower 48. Tuesday will still be another unseasonably chilly day with highs 10F-20F below-average across most areas. By Wednesday, these anomalies will moderate to 5F-10F cooler-than-normal and by Thursday and Friday, above-average temperatures will return to the eastern two-thirds of the nation. As a result, by Thursday and Friday, daily storage injections could climb back into double digits and above the 5-year average. For the full storage week of April 16-22, I am projecting a +28 BCF injection, a strong 25 BCF bullish versus the 5-year average but actually 10 BCF larger than last year. It would be the third smallest withdrawal for the week in the last 5 years, behind only 2018’s +5 BCF and 2021’s +18 BCF. Should a +28 BCF injection verify, natural gas inventories would rise to 1464 BCF while the storage deficit versus the 5-year average would widen to -331 BCF. The year-over-year deficit would narrow to -432 BCF. The EIA will release its official storage numbers for the week next Thursday, April 28, at 10:30 AM EDT. Click HERE for more on my current projection.
My posts are my opinion. Always trade at your own risk.