Replies to post #24637 on Cycle Trading

[No-Quarter]

This morning's NatGas update. This morning got away from me hence the delay to post. GLTY

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

FYI, here is the definition of 'injection season'.

https://www.eia.gov/todayinenergy/detail.php?id=18211#:~:text=In%20natural%20gas%20markets%2C%20analysts,are%20not%20strict%20cutoff%20points.

Natural Gas Prices Fall Friday, But Finish The Week With a Solid Gain; Strong Powerburn & LNG Export Demand Outweigh Production Gains And Support Higher Prices In The Near-Term To Rebalance Markets; Gas Demand Set To Drop This Week As Cooler Temperatures Finally Arrive But Heat Expected To Return For Early June

6:00 AM EDT, Monday, May 23, 2022

Natural gas prices took a breather on Friday to wrap up an otherwise strong week as investors stepped to the sidelines heading into the weekend. The front-month June 2022 contract settled down 23 cents or 2.7% on Friday to $8.08/MMBTU. Nonetheless, the commodity still finished the week up a solid 5.5%, its third weekly gain in the last 5 weeks.

Daily GWDD Outlook

Figure 1: Click here for more information on on the near-term temperature outlook.
In addition to routine profit-taking after a big move higher, the commodity was likely pressured by a pending cooldown and higher production. After a blistering weekend across the Eastern Seaboard that saw most of the major cities along the I-95 corridor top 90F, temperatures will cool 15F-20F over the next 3-5 days as a strong cold front moves through. As the Figure to the right shows, daily GWDDs will drop from 10 GWDDs/day over the weekend to as low 6 GWDDs by Thursday and Friday. It is possible that cooling demand will then ramp back up for the last few days of May into early June, but the near-term models have been inconsistent on the magnitude of such a warm-up. As of Sunday evening, my Consensus Model—which integrates a performance-based average of GFS OP, GFS ENS, and ECWMF ENS data—was calling for 118 GWDDs, still the third most for the May 23-June 5 period in the last 5 years, but behind the 130 GWDD forecast from the middle of last week. As a result, projected daily storage injections will rebound from their nadir of +8 BCF/day back closer to the 5-year average over the next week.

Additionally, after a flat-ish week, natural gas production climbed back above 95 BCF/day on Friday to a strong 95.8 BCF/day—less than 0.5 BCF/day below 2022 highs—and held close to this level through the weekend. As the Figure to the right shows, natural gas production has been on a general upward trajectory since bottoming near 93 BCF/day in late April. However, most analysts—including yours truly—agree that output will need to quickly climb over 97.5 BCF/day, last December’s all-time highs, in order to rebalance the market this Summer.

And it is possible that it could still do so before the end of the second quarter as drilling activity seems to be finally responding to higher prices. On Friday, Baker Hughes released its weekly Rig Count for the week ending Mary 20. The natural gas rig count only ground higher by 1 rig to 150 rigs, still the 22nd straight week that the rig count has held steady or gained rigs.

However, thanks to a jump in oil rigs, the combined oil and gas rig count surged by 14 rigs to 728 rigs, the largest weekly gain since April 8 and the third largest since December 2020. At 728 rigs, the combined rig count is up a steep 273 rigs or 60% versus last year. This is relevant for natural gas as up to 20% of gas output comes from associated gas production from primary oil basins such the Permian.

It will take some time for gas output to respond to the higher rig counts, but the trajectory of both rig counts and output is encouraging. In a more bearish scenario, production topping 97.5 BCF/day before the end of the second quarter and 100 BCF/day before the end of 2022 would be sufficient to rebalance supply and demand and begin to cut into the storage deficit, likely finally driving a sustained pullback to natural gas prices.

While I therefore remain long-term bearish, bullish catalysts persist in the near-term. While the temperature outlook has cooled somewhat in the near-term, the overall forecast continues to look favorable and, with natural gas only increasing its share of the fuel stack, powerburn demand has gotten off to an exceptionally strong start to the cooling season. Even higher prices appear to be necessary to trigger any sort of demand destruction. Additionally, the LNG maintenance season is wrapping up and feedgas demand topped 13 BCF/day. While European inventories have rebounded substantially this Spring and prices have retreated, they remain supportive of US exports and I expect feedgas demand to remain consistently above 13 BCF/day for the rest of the Summer. For these reasons, I would not be surprised to see higher gas prices in the near-term and $10/MMBTU remains possible in the next 6 weeks should the temperature outlook remain hot. However, over the long-term, I do see prices pulling back to a price floor of $6.50/MMBTU before the end of the injection season, but not yet.

Over the weekend, natural gas demand rose as the hottest temperatures of the season overspread the major population centers of the Eastern Seaboard. After a +10 BCF/day daily storage injection on Friday, projected builds fell to a mere +8 BCF/day on Sunday before recovering to +10 BCF/day on Sunday, both comfortably bullish versus the 5-year average +14 BCF/day. Look for gas demand to fall today as much cooler temperatures overspread the Lower 48. In fact, most areas east of the Rockies will see below-average readings today. The exception will be the immediate Southeast with Tampa, FL and Jacksonville, Fl reaching the lower 90s. Further north, it will be an unseasonably mild overnight with Philadelphia, PA and New York City not falling below 70F, 15F above-average, but temperatures won’t rise much at all today after an early-morning cold front blows through. And, behind this front, readings will be much cooler. Chicago, IL will be stuck in the lower 60s, St Louis, MO and Nashville, TN near 70F, and Little Rock, AR in the mid-70s, 10F-15F cooler-than-normal. Even Texas won’t escape from the chill with Dallas only in the upper 70s and San Antonio the mid-80s, each 5F-10F below-average.

Overall, today’s forecast mean population-weighted nationwide temperature will cool by -3.5F from Sunday to 65.0F, 2.6F below-average. However, Total Degree Days (TDDs) will still reach 7.6 TDDs, the 17th most for May 23 in the last 40 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 +12 BCF/day daily natural gas storage injection, 1.5 BCF/day larger than yesterday but still nearly 3 BCF/day bullish versus the 5-year average. By tonight, projected Realtime natural gas inventories will rise to 1848 BCF. The deficit versus the 5-year average will widen to -334 BCF while the year-over-year deficit will grow to -394 BCF. Click HERE for more on today’s projected injection and Realtime inventories. For the remainder of the week, look for gas demand to continue to slowly retreat with injections topping +15 BCF/day by the end of the week, just above the 5-year average.