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Replies to post #24506 on Cycle Trading
04/27/22 7:41 AM
Natural Gas Rallies As Production Struggles Continue While Oil Gains As Investors Eye Chinese Lockdowns & Stimulus; EIA Expected To Announce Bearish Crude Oil Inventory Build But Bullish Refined Product Drawdowns In Today’s Petroleum Status Report; Gas Demand Set To Jump Today As Unseasonably Cold Temperatures Expand Into The Northeast
6:00 AM EDT, Wednesday, April 27, 2022
In another volatile session of trading, natural gas prices rallied as short-term production losses again weighed. The front-month May 2022 contract gained another 18 cents or 2.6% to settle at $6.85/MMBTU while the T+1 June 2022 contracted added 17 cents to $6.98/MMBTU.
The rally was driven by continued production concerns that saw output hold under 94 BCF/day thanks to losses concentrated across the Rockies and Dakotas, on account of the weekend’s latest blizzard that had knocked out power to much of the region, as well as fresh declines in the Appalachian Region likely associated with maintenance events. While temporary, these dips are likely to slow production growth and reduce the chances that output can reach new highs before the heart of the cooling season arrives by June and July. The sector was also given a jolt after Poland and Bulgaria announced that Russian pipelines would cut supplies this week after the two were unwilling to pay in Ruples. This sent European TTF prices spiking by over 10%.
With the near-term temperature outlook becoming less and less of a day-to-day driver of sentiment as we enter the heart of the Shoulder Season, natural gas supply/demand fundamentals—namely, production—will take center stage. As long as production struggles under 95 BCF/day, natural gas prices could continue to bounce higher and $7.25/MMBTU or even $7.50/MMBTU are possible near-term targets. However, any such bounce will likely be temporary. If and when output recovers, I continue to expect sellers to step back in and for prices to fall back towards last week’s lows of $6.50/MMBTU. Long-term, I am maintaining a $5.00/MMBTU downside price target over the next 3-6 months.
Meanwhile, oil prices settled higher on Tuesday in a choppy trading session as investors continue to weigh the possibilities and implications of further COVID-associated lockdowns in China as well as the nation’s steps to stimulate its economy. The front-month June 2022 WTI contract gained $3.16 or 3.2% to settle at $101.70/barrel while Brent gained $2.67 to $104.99/barrel. The EIA will release its weekly Petroleum Status Report for April 16-22 this morning at 10:30 AM EDT detailing crude oil and refined product inventories as well as supply/demand data. After the close of trading on Tuesday, the American Petroleum Institute (API) announced that it was expecting a +4.8 MMbbl crude oil inventory build, a slight 1.3 MMbbls bearish versus the 5-year average +3.5 MMbbls. This also includes a Strategic Petroleum Reserve (SPR) release between 2 MMbbls and 4 MMbbls. Should a +4.8 MMbbl build verify, inventories would rise to 418.5 MMbbls while the storage deficit versus the 5-year average would narrow to -71.5 MMbbls. The year-over-year deficit would narrow to -74.5 MMbbls. However, the bearishness of the crude oil build may be offset by more bullish data from refined products. The API expects gasoline stocks to have fallen by -3.9 MMbbls, 3.6 MMbbls bullish versus the 5-year average -0.3 MMbbls. Distillates are expected to have risen by a neutral +0.4 MMbbls, 0.2 MMbbls larger than the 5-year average +0.2 MMbbls Overall, Total Petroleum Inventories (crude oil + gasolines + distillates) are expected to have gained +1.3 MMbbls, a slight -2.1 MMbbls bullish versus the 5-year average. Overall, this looks to be a slightly bullish report and supportive of $100/barrel WTI, which remains my neutral price target. Check back after 10:30 AM EDT on my oil inventories page HERE for the EIA’s official storage numbers.
Meanwhile, natural gas demand will continue to ramp up today as colder-than-normal temperatures expand from the Great Plains into the densely-populated Northeast. The largest anomalies will be found across the Great Lakes into interior New England with Pittsburgh, PA and Detroit, MI only reaching the mid-40s, Buffalo, NY near 40F, and Milwaukee, WI the upper 30s, each around 20F colder-than-normal. Alon the I-95 corridor, conditions will be a bit more moderate with Washington, DC, Philadelphia, PA and New York City each topping out near 60F, 5F-10F below-average. Cool conditions will extend into the Southeast as well with Raleigh, NC only reaching the upper 60s, Little Rock, AR and Birmingham, AL the lower 70s, and Houston, TX the upper 70s, each up to 5F below-average. On the other hand, warmer-than-normal readings will begin to build across the Rockies and Central Plains with Denver, CO reaching the lower 70s, Kansas City, MO the mid-70s, and Topeka, KS the upper 70s, each around 10F warmer-than-normal.
Overall, however, the East cooldown will be the primary driver for the Lower 48 with today’s forecast mean population-weighed nationwide temperature cooling -2.3F from Tuesday to 56.7F today, 4.0F colder-than-normal. Total Degree Days (TDDs) will jump to 10.9 TDDs, the 7th most for April 27 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 +5.5 MMbbl natural gas storage injection, 4 BCF smaller than yesterday’s build and a strong 6 BCF bullish versus the 5-year average. By tonight, projected Realtime natural gas inventories will rise to 1547 BCF while the storage deficit versus the 5-year average will climb back above the -300 BCF mark after a 4-day hiatus to reach -304 BCF by tonight. The year-over-year deficit will gain 3 BCF to -387 BCF. Click HERE for more on today’s projected injection and Realtime inventories.
04/27/22 9:39 AM
Europe decries 'blackmail' as Russia shuts off gas to Poland and Bulgaria
