The bear argument for natgas
The bear argument for natgas
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Re: The bear argument for natgas
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I HOPE BY NOW YOU ARE ALL CRYSTAL CLEAR ON THIS POINT, but I will say it one more time.
"I do expect another spike in the price of natural gas within the next 60 days, BUT it will only support gas prices through the end of the winter heating season. Gas prices will only remain elevated after March IF GAS IN STORAGE IS TAKE DOWN TO AN HISTORICALLY LOW LEVEL."
Mother Nature is in charge: If draws from storage from now until March 31st are exactly equal to the 5-year average, storage will be 1,007 Bcf heading into the refill season. That compares to the 5-year average of 1,704 Bcf and the lowest point in the last 15 years of 824 Bcf. If Dr. Joe Bastardi's winter forecast is correct, storage could be near 1,000 Bcf at the end of February. Draws for March are in the range of 300 to 400 Bcf for the month.
WHY WILL LOW STORAGE SUPPORT PRICES? > Because refilling storage is not an option; it is a big part of natural gas demand that must be met. If storage is down to 1,000 Bcf on March 31st it adds an additional 100 Bcf per month of demand from April to November (the 7 month "Refill Season") that IMO is not being considered by most analysts.
ANOTHER MAJOR POINT: In January, 2014 the front month NYMEX contract spiked to $5.43 and averaged over $4.00 for April to December of 2014. However, a flood of Eagle Ford associated gas and a warm 2015/2016 winter caused natural gas to drop to $1.72 in February, 2016. The primary reason is because the Eagle Ford gas grossly over-supplied the Henry Hub physical market. This should not repeat in 2019 because we now have more ways (pipelines and LNG) to export the associated gas that should ramp up from the Permian Basin. Plus, natural gas demand is growing very fast.
Let's see what happens when we have back-to-back weekly draws from storage of more than 250 Bcf in January.
I HOPE BY NOW YOU ARE ALL CRYSTAL CLEAR ON THIS POINT, but I will say it one more time.
"I do expect another spike in the price of natural gas within the next 60 days, BUT it will only support gas prices through the end of the winter heating season. Gas prices will only remain elevated after March IF GAS IN STORAGE IS TAKE DOWN TO AN HISTORICALLY LOW LEVEL."
Mother Nature is in charge: If draws from storage from now until March 31st are exactly equal to the 5-year average, storage will be 1,007 Bcf heading into the refill season. That compares to the 5-year average of 1,704 Bcf and the lowest point in the last 15 years of 824 Bcf. If Dr. Joe Bastardi's winter forecast is correct, storage could be near 1,000 Bcf at the end of February. Draws for March are in the range of 300 to 400 Bcf for the month.
WHY WILL LOW STORAGE SUPPORT PRICES? > Because refilling storage is not an option; it is a big part of natural gas demand that must be met. If storage is down to 1,000 Bcf on March 31st it adds an additional 100 Bcf per month of demand from April to November (the 7 month "Refill Season") that IMO is not being considered by most analysts.
ANOTHER MAJOR POINT: In January, 2014 the front month NYMEX contract spiked to $5.43 and averaged over $4.00 for April to December of 2014. However, a flood of Eagle Ford associated gas and a warm 2015/2016 winter caused natural gas to drop to $1.72 in February, 2016. The primary reason is because the Eagle Ford gas grossly over-supplied the Henry Hub physical market. This should not repeat in 2019 because we now have more ways (pipelines and LNG) to export the associated gas that should ramp up from the Permian Basin. Plus, natural gas demand is growing very fast.
Let's see what happens when we have back-to-back weekly draws from storage of more than 250 Bcf in January.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group