Cycle Trading

[No-Quarter]

This morning's NatGas update. Running the wrong way for me. GLTY

Natural Gas Jumps In Volatile Trading Session On Powerburn Strength & Flat Production; Gas Demand Set To Rise Today As Deep South Heat Trumps Northern Tier Cooldown

6:00 AM EDT, Tuesday, May 17, 2022

In a volatile trading session, natural gas prices ultimately got off to a strong start on Monday to open the week. Prices gapped up over 5% Monday morning, trading as high as $8.18/MMBTU right at the open before immediately giving up all of its gains to trade under $7.70/MMBTU by 12:30 PM. Prices then ramped up into the close, settling up 29 cents or 3.8% to $7.96/MMBTU. It was the highest close since May 6.

The rally was driven by an extension of the previous week’s catalysts. Natural gas production remained relatively flat over the weekend, holding at the 95 BCF/day level, down 2 BCF/day from the January 2022 highs. Powerburn demand notched a new 2022 high on Monday, coming in at a preliminary 36 BCF/day, up 9 BCF/day versus last year, as shown in the Figure to the right. The natural gas share of the powerstack is up a strong +1.9% versus 2021, the second largest year-over-year gainer after wind’s +3.8%, despite a more than +150% gain in prices year-over-year. In contrast, coal’s % share is down -2.4%, the most of any fuel source.

So long as powerburn demand remains strong, there will remain near-term upside pressure on gas prices and I would not be surprised to see the commodity trade back above $8.00/MMBTU. It will take a sustained gain in production above 95 BCF/day to stabilize prices ahead of a sustained pullback. Long-term, I remain bearish on the sector as supply/demand imbalances are still expected to loosen but, at this point, the path of least resistance remains higher.

Natural gas demand will rise today as temperatures warm across the Deep South, even as the Northern Tier trends cooler. San Antonio, TX will top 100F today while Dallas, TX and Houston, TX will both see the upper 90s, Oklahoma City, OK the upper 80s, and Denver, CO the lower 80s, each 10F-15F hotter-than-normal. Across the Southeast, Atlanta, GA will reach the mid-80s, Richmond, VA the upper 80s, and Columbia, SC near 90F, each 5F-10F above-average. On the other hand, parts of the northern Midwest, Great Lakes, and interior New England will see unseasonably cool temperatures today. Milwaukee, WI and Buffalo, NY will struggle to reach 60F while Minneapolis, MN, Detroit, MI, and Chicago, IL will only see the lower-to-mid 60s, each 5F-10F above-average. The densely-populated I-95 corridor will be largely seasonable, with Washington, DC in the lower 80s, Philadelphia, PA near 80F, and New York City in the mid-70s, each up to 5F above-average.

Overall, today’s forecast mean population-weighted nationwide temperature will actually cool by -1.7F to 68.5F due to the cooldown across the Northern Tier, though this is still 2.5F above-average. However, this time of year, the warm-up across the Deep South will trump the northern cooldown from a demand standpoint and Total Degree Days (TDDs) will rise to 7.8 TDDs, the 16th most for May 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 +15 BCF/day daily natural gas storage injection for today, 2 BCF smaller than Monday’s build but still 1 BCF bearish versus the 5-year average. By tonight, projected Realtime natural gas inventories will rise to 1794 BCF while the storage deficit versus the 5-year average narrows to -302 BCF. On the other hand, the year-over-year deficit will widen by 1 BCF to -354 BCF. Click HERE for more on today’s projected injection and Realtime inventories.