EIA - Natural Gas Storage Report - July 27

[dan_s]

Working gas in storage was 2,987 Bcf as of Friday, July 21, 2023, according to EIA estimates.
This represents a net increase of 16 Bcf from the previous week.
Stocks were 573 Bcf higher than last year at this time and 345 Bcf above the five-year average of 2,642 Bcf.
At 2,987 Bcf, total working gas is within the five-year historical range.

There are ~16 more weeks left in the refill season. The 5-year average builds for the next 16 weeks total 970 Bcf.
So, storage heading into the 2023/2024 winter is likely to be in the range of 3,900 to 4,100 Bcf range.
The 2022/2024 winter began with 3,644 Bcf in storage, so the surplus to the 5-year average is likely to be over 300 Bcf mid-November.
What happened last year?
> We had two weeks of colder than normal temperatures in the eastern U.S. during December, 2022 and then we had one of the warmest winters on record. In mid-December, 2023 the HH gas price was still over $6.00. By December 31, 2023 it was down to $4.00.
> By February, 2023 the utilities that pump natural gas to your home or business believed they had enough gas supply in storage or confirmed to make it through the rest of the winter. These "Physical Buyers" pulled out of the futures market and the MAR23 NYMEX contract fell to $2.33 because the "Paper Traders" did not have enough Physical Buyers to cover their long positions. Paper Traders must close all of their positions in the futures market before the front month futures contract expires.
> Q1 2023 HH ngas prices averaged $2.72 and dipped down to $2.00 in April.

My concern is that there is not enough time left in the refill season to avoid beginning the 2023/2024 heating season without a big surplus of natural gas in storage.
What could happen to avoid the strip prices for DEC23 to MAR24 pulling back below $3.00?
> We could have a string of weekly builds below the 5-year average builds.
> Demand from industrial users should hold up if we can avoid a recession, which now seems like a good bet.
> Hopefully, the Paper Traders learned a lesson last year and avoid getting "Too Long".
> We could have a lot of Paper Traders go to an excessive short position and a very cold start to the winter could trigger a Short Covering Rally. < This has happened before. A 300 Bcf draw during December would be a nice Christmas Gift for the gassers.
> There is a strong El Nino building in the Central Pacific Ocean, so this coming winter will be much different than last winter.
> We also had the Freeport LNG Facility go offline in Q1 and stay offline most of the year. If we avoid a similar shutdown, demand for LNG exports should be quite a bit higher through the winter heating season.
> U.S. natural gas production growth seems to have stopped.

This is why I think it is a good idea to over-weight your portfolios to crude oil in the SHORT-TERM.