Cycle Trading

[No-Quarter]

NatGas update. I added the bold to the text below for emphasis. I still hold KOLD, but based on the below, will likely look for the next upcycle in KOLD to be my exit. No big payday for me this time. GLTY.

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

Natural Gas Fades After The EIA Reports Neutral +89 BCF Injection; Near-Term Storage Projections Revised Lower As Powerburn Outperforms; Higher Gas Prices Needed In The Near Term To Rebalance Market; Gas Demand To Ramp Up This Weekend As Record Heat Shifts Into The Northeast

6:00 AM EDT, Friday, May 20, 2022

In its weekly Natural Gas Storage Report for May 7-13, the EIA announced Thursday morning that inventories rose by +89 BCF. This was equal to my projection and was a neutral to slightly bearish 2 BCF greater than the 5-year average. With the injection, storage levels rose to 1732 BCF while the deficit versus the 5-year average narrowed slightly to -310 BCF. The year-over-year deficit fell by a more substantial 18 BCF to 348 BCF.

This was the last week before the heat started to crank up across the Deep South and this was reflected in the report. The South Central Region saw the largest regional injection at +32 BCF, 4 BCF bearish versus the 5-year average, the most bearish of any region. On the other hand, the Pacific Region saw a +4 BCF injection, 6 BCF bullish versus its 5-year average. The East, Midwest, and Pacific Regions were nearly neutral versus their 5-year averages. Despite its bearish injection, the South Central Region continues to have the largest deficit versus the 5-year average at -112 BCF, comfortably ahead of the Midwest’s -77 BCF. However, compared to 2021, the two regions are flipped, with the Midwest at -104 BCF, just ahead of the South Central’s -98 BCF.

Through the first 7 weeks of the traditional storage injection season, natural gas inventories have now climbed by +317 BCF, 112 BCF bullish versus the 5-year average and the second smallest in the last 5 years, behind only 2018’s +275 BCF. In contrast, 2019 had, by this point, seen a massive +623 BCF injection. With storage injections likely to come in at or below the 5-year average over the next several weeks, look for 2022 to hold onto second place.

Overall, this was a neutral storage report, coming in close to both my projection and the 5-year average. Initially, natural gas appeared to be on course to log another big day in the black as prices initially recovered from a more than 3% early-session gap down to reach an intraday peak of $8.50/MMBTU, up +1.5%. However, the profit-takers then stepped in and the commodity ultimately settled down 6 cents or 0.7% at $8.31/MMBTU. Prices then continued lower after the 2:30 PM close of floor trading, dipping to as low as $8.15/MMBTU by the 4:00 PM close of equities trading. As a result, the 1x ETF UNG closed down -1.8% on session.

This pullback seemed more technical than fundamental as the overall environment remains supportive. In particular, LNG feedgas demand reached 13 BCF/day on Thursday for the first time since early April. Production has been kept in check under 95 BCF/day. And most importantly, powerburn demand remains quite strong, averaging more than 6 BCF/day higher year-over-year with even hotter temperatures on the way this weekend. This last element is particularly bullish as it suggests that the 150% year-over-year gain has been insufficient to prompt significant demand destruction. As a result, my projected end-of-season peak storage level has been steadily declining and now stands at 3439 BCF, 235 BCF bullish versus the 5-year average and the second lowest behind only 2018’s 3247 BCF. It is down nearly 100 BCF over the past two weeks as powerburn has ramped up and, should current trends hold up, will likely drop further still.

For all of these reasons, my bearish sentiment is eroding. It is becoming increasingly clear that higher prices are needed to begin pricing out powerburn and LNG exports and to support higher production. For this reason, I am raising my summertime downside price target to $6.50/MMBTU, which has so far acted as resistance, and I wouldn’t be surprised to see prices top $10/MMBTU in the near-term if the temperature outlook remains hot and powerburn strong.

Natural gas demand will rise today as heat begins to build across the densely-populated East. However, it will be a day of extreme temperature contrast across the Lower 48, more typical of March or April than mid-May. The largest above-average anomalies will be found across the Southeast and Mid-Atlantic, where Columbia, SC could near 100F, and Raleigh, NC, Charlotte, NC, and Richmond, VA will all see the upper 90s, each around 20F hotter-than-normal. Further north, Washington, DC could reach 90F while Philadelphia, PA sees the mid-80s, each around 10F above-average. The heat will extend westward into the Midwest with Louisville, KY and St Louis, MO both reaching 90F while Dallas, TX could again top 100F, each 10F-15F above-average. However, a potent cold front will stretch from the Texas Panhandle northwards to near Minneapolis, MN and, behind this front, readings will be unseasonably cold. After reaching the upper 80s yesterday, Denver, CO will cool dramatically by over 45F day-over-day, reaching only the lower 40s today. Most impressively, the city is under a Winter Storm Warning for 5-10 inches of snow this evening and overnight. While snow is not unheard of in the city in May, it is likely to be one of the Top 5 May snow storms on record. Unseasonably chilly temperatures will extend northwards with Billings, MT and Bismack, ND only seeing the mid-40s, 25F colder-than-normal and sufficient for some very late-season heating demand.

Overall, however, the hot weather across the East will dominate and today’s forecast mean population-weighted nationwide temperature will warm by +1.3F to 72.0F, a balmy +5.2F above-average. Total Degree Days (TDDs) will rise to 10.9 TDDs—a combination of HDDs and CDDs—the third most for May 20 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, 2 BCF smaller than yesterday and nearly 4 BCF bullish versus the 5-year average. For the full storage week of May 14-20 that ends today, I am projecting a +88 BCF injection, 9 BCF bullish versus the 5-year average and 21 BCF smaller than last year’s draw. It would be the second smallest injection for the week in the last 5 years, behind only 2017’s +76 BCF. Regular followers of the site will notice that this is a significant decrease from prior projections which were closer to +100 BCF. This downward revision has been driven by the unexpectedly strong powerburn demand over the past week which has resulted in a tightening of my demand-per-degree day model. Further tightening may be necessary should powerburn demand remain strong. Should a +88 BCF injection verify, natural gas inventories would rise to 1820 BCF while the storage deficit versus the 5-year average would widen to -319 BCF. The year-over-year deficit would grow to -378 BCF. The EIA will release its official storage numbers for the week next Thursday, May 26. Click HERE for more on my projection.

Looking ahead to next week, natural gas demand will start the week very strong on Saturday as the most intense heat shifts into the densely-populated Northeast. Heat Advisories are already up for Philadelphia, PA and Boston, MA where highs will reach the mid-to-upper 90s, 15F-20F hotter-than-normal. As a result, I am projecting a mere +8 BCF/day daily storage injection on Saturday, 6 BCF bullish versus the 5-year average. Demand will then steadily fall as the cold front draped across the Central US today shifts eastward. By Wednesday and Thursday, much of the Lower 48 will see highs closer to average and daily injections close to the 5-year average, as shown in the Figure to the right. For the full storage week of May 21-27, I am projecting a +84 BCF injection, a solid 16 BCF bullish versus the 5-year average and last year. It would be the single smallest injection for the week in the last 5 years, just ahead of 2017’s +85 BCF. Should it verify, natural gas inventories would rise to 1904 BCF while the deficit versus the 5-year average widens to -335 BCF—a new 2022 high–and the year-over-year deficit grows to -395 BCF. The EIA will release its official storage numbers for the week Thursday, June 2. Click HERE for more on my projection.