Comments below are from BMO Capital's Commodity Market Summary for Nov 14
Prompt Nymex and the rest of the winter months continued their rally today with the front month (DEC) soaring 0.736 to settle at $4.837 the largest gain in 8 years and highest price since the polar vortex.
Early morning buying in the Dec'18 contract sent the market to 4.924 on the highs or +80 cents on the back end of cash strength and rumors of a large energy fund liquidating a spread position. The spread in question is Mar/Apr which traded as high as $1.74/mmBtu before settling late day near 1.50. Further buying was found on the back of stop-outs in Dec'18 and Feb'19 calls where in the money call buyers for size on the 4.50 and 3.40 strikes sent both price and vol higher. Anecdotally the Mar'19 15.00 strike calls traded for 0.075 today as the panic reached its peak. Back end swaps were offered on limited deal flow and strong backwardation from 2019. 20-23 settled down 1-2 cents on the day. In other news, Cheniere announced today that it started up the first train at its $15 B Corpus Christi LNG facility.
The Natural Gas Futures Market - Nov 14
The Natural Gas Futures Market - Nov 14
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: The Natural Gas Futures Market - Nov 14
From the energy board.
Quick Bernstein note on NG spike
We have received a number of questions about the momentous spike in daily natural gas price to $4.60/mmbtu this week, up from the low 3's two weeks ago. We attribute this spike to three things: (1) unexpected cold weather in the Northeast (2) record low gas storage and (3) less so, falling crude price potentially beginning to lower forward associated gas outlooks. Exhibits 1-2.
We said here that the record low storage levels that we were entering the fall with could lead to giant spikes in winter gas price, especially regionally, but would not massively impact the forward curve, as the main reason why storage was allowed to get so low in the first place was the expected wave of free associated gas coming in 2019+.
That is essentially what is happening – although winter months have moved to $4.50/mmbtu over the past few weeks, the forward curve from April onward remains stubbornly in the high 2's suggesting that, for now, decreases in oil production/associated gas outlooks are not a major factor in gas price. Most of what we have heard from investors is that they are watching but wouldn't act on shifting money from oily to gassy E&Ps until gas price in April onward was above $3 (in our model this would take another $5-$10/bbl down in oil).
Quick Bernstein note on NG spike
We have received a number of questions about the momentous spike in daily natural gas price to $4.60/mmbtu this week, up from the low 3's two weeks ago. We attribute this spike to three things: (1) unexpected cold weather in the Northeast (2) record low gas storage and (3) less so, falling crude price potentially beginning to lower forward associated gas outlooks. Exhibits 1-2.
We said here that the record low storage levels that we were entering the fall with could lead to giant spikes in winter gas price, especially regionally, but would not massively impact the forward curve, as the main reason why storage was allowed to get so low in the first place was the expected wave of free associated gas coming in 2019+.
That is essentially what is happening – although winter months have moved to $4.50/mmbtu over the past few weeks, the forward curve from April onward remains stubbornly in the high 2's suggesting that, for now, decreases in oil production/associated gas outlooks are not a major factor in gas price. Most of what we have heard from investors is that they are watching but wouldn't act on shifting money from oily to gassy E&Ps until gas price in April onward was above $3 (in our model this would take another $5-$10/bbl down in oil).
Re: The Natural Gas Futures Market - Nov 14
As I have posted here many times the spike in natural gas prices will be short lived unless we have a cold winter (now likely) that takes storage down to near 1,000 Bcf. The short-term price is being caused by (a) short covering and (b) just the beginning of what I believe will be an "historic" bidding war in the physical market.
I know 1,000 Bcf left in storage at the end of the winter heating season sounds like a lot, but that will be cutting into storage "Base Load". The lowest storage has been at the end of the heating season was 850 Bcf at the end of March, 2014. 2014 was the last time natural gas stayed over $4.00 all year.
IMO the "FEAR" of associated gas from Texas causing a big drop in gas prices is way over-done. It happened in Q1 2016 because we had so much associated gas from the Eagle Ford come online that it flooded the Henry Hub. Today we have more pipelines that can take gas to Mexico and we have more LNG export capacity along the Gulf Coast. Enbridge's Valley Crossing pipeline is now filling up. It will be transporting to Mexico from South Texas. The pipeline's capacity is 2.6 Bcfpd. See: https://www.enbridge.com/Projects-and-I ... ct-to-date
Until recently that consensus on Wall Street was that natural gas would average $2.25/MMBtu in 2019. The consensus is rising and I've seen several analysts raise their forecasts to $2.75 for 2019. I have been using $2.50 in all of my forecast models. I am now "optimistic" that we might see gas stay over $3.00 through 2019.
I know 1,000 Bcf left in storage at the end of the winter heating season sounds like a lot, but that will be cutting into storage "Base Load". The lowest storage has been at the end of the heating season was 850 Bcf at the end of March, 2014. 2014 was the last time natural gas stayed over $4.00 all year.
IMO the "FEAR" of associated gas from Texas causing a big drop in gas prices is way over-done. It happened in Q1 2016 because we had so much associated gas from the Eagle Ford come online that it flooded the Henry Hub. Today we have more pipelines that can take gas to Mexico and we have more LNG export capacity along the Gulf Coast. Enbridge's Valley Crossing pipeline is now filling up. It will be transporting to Mexico from South Texas. The pipeline's capacity is 2.6 Bcfpd. See: https://www.enbridge.com/Projects-and-I ... ct-to-date
Until recently that consensus on Wall Street was that natural gas would average $2.25/MMBtu in 2019. The consensus is rising and I've seen several analysts raise their forecasts to $2.75 for 2019. I have been using $2.50 in all of my forecast models. I am now "optimistic" that we might see gas stay over $3.00 through 2019.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: The Natural Gas Futures Market - Nov 14
TPH on natural gas:
Natural Gas Macro Update
Weather has helped in 2018; Fundamentals still point to a concerning 2019 forecast
Unfortunately, our bearish tone has not changed for 2019 following a detailed supply update, as we simply have too much gas coming to market. The combination of early winter weather in 2018 mixed with pipeline delays has helped to set up a constructive inventory backdrop heading into year-end (624bcf below 5 yr norms); however, the recent supply ramp in the Northeast (+3.5Bcf/d since June) and associated gas growth has shifted the market into weekly oversupply (~3Bcf/d weather adjusted). Over the next 15 months we do see positive demand tailwinds, with LNG ramping up materially by ~4Bcf/d by the end of 2019 coupled with Mexican gas exports and moderate growth in industrial/rescom demand, we could see total demand accelerate by 5Bcf/d - unfortunately this is unable to keep pace with our gas growth forecast of 7.8Bcf/d exit-over-exit. All signs point to prices needing to head lower (TPHe <$2.5/mcf) to push the industry to slow growth meaningfully, especially in basins like the Haynesville.
Natural Gas Macro Update
Weather has helped in 2018; Fundamentals still point to a concerning 2019 forecast
Unfortunately, our bearish tone has not changed for 2019 following a detailed supply update, as we simply have too much gas coming to market. The combination of early winter weather in 2018 mixed with pipeline delays has helped to set up a constructive inventory backdrop heading into year-end (624bcf below 5 yr norms); however, the recent supply ramp in the Northeast (+3.5Bcf/d since June) and associated gas growth has shifted the market into weekly oversupply (~3Bcf/d weather adjusted). Over the next 15 months we do see positive demand tailwinds, with LNG ramping up materially by ~4Bcf/d by the end of 2019 coupled with Mexican gas exports and moderate growth in industrial/rescom demand, we could see total demand accelerate by 5Bcf/d - unfortunately this is unable to keep pace with our gas growth forecast of 7.8Bcf/d exit-over-exit. All signs point to prices needing to head lower (TPHe <$2.5/mcf) to push the industry to slow growth meaningfully, especially in basins like the Haynesville.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group