ALERT ALERT CHK makes an announcemnt

[Fraser921]

After the market closed CHK announced they were cutting cap ex 20 %. NG prices immediately responded!

https://seekingalpha.com/news/4069516-chesapeakes-production-cuts-spark-boost-for-natural-gas-futures?mailingid=34420185&messageid=2900&serial=34420185.4808&utm_campaign=rta-stock-news&utm_content=link-3&utm_medium=email&utm_source=seeking_alpha&utm_term=34420185.4808

From Celsius

The selling pressure came after the late February and early March temperature outlook trended warmer over the weekend, driving projected storage surpluses north of +500 BCF by early March and season-ending minimums above 2200 BCF. As of Monday evening, my Consensus Model—which integrates a performance-based average of GFS OP, GFS ENS, and ECWMF ENS data—was calling for an ugly 276 GWDDs for February 21-March 5, by far the single fewest for the period in the last 5 years and the fewest for any 14-day period this winter.

Some traders may have been expecting an even more robust sell-off given just how bearish the temperature outlook was. The fact that prices “only” lost 2% further reinforced the idea that selling fatigue may be creeping in, as was seen late last week, and that the bearish narrative was running out of steam. After a 50% decline in the past 6 weeks, all the bad news has been largely priced in while upside surprises have been discounted and pushed into the background. This asymmetry of sentiment was reinforced emphatically in after-hours trading after Chesapeake Energy (CHK) announced that it was cutting 2024 CapEx by -20%. Natural gas prices immediately responded by surging over 8% with the March contract topping $1.71/MMBTU. Chesapeake’s announcement was objectively bullish, especially after last week when E&Ps, such as EQT, were more cautious on potential production curtailments during their earnings calls. The company expects Marcellus output to drop from 1.941 BCF/day (including oil equivalent) in 2023 to 1.525 BCF/day in 2024 and Haynesville output from 1.55 BCF/day to 1.175 BCF/day, a nearly 25% decline in output. How was guidance from a single company able to drive such a robust response? On an absolute level, this reduction is rather meager and won’t tighten supply/demand imbalances meaningfully. However, if it is the beginning of a new narrative in which E&Ps are broadly going to be cutting costs, production could easily see a 5-7 BCF/day decline that would dramatically tighten imbalances this Spring and Summer. More importantly, it broke the cycle of relentless bad news and served as a reminder just how discounted prices had become.

Daily Natural Gas Production

That said, this announcement are not going to solve the supply glut overnight. The storage surplus is still likely to top +500 BCF and inventories are going to bottom well above 2000 BCF. However, in a market that has been dominated by bearish catalysts over the past 6 weeks, this represented an honest-to-goodness bullish catalyst and, after speculative short holdings had surged 85% in the past 5 weeks, set up the abrupt short squeeze we saw Tuesday evening.

While I wouldn’t be surprised to see surprised to see prices give up some of yesterday afternoon’s gains in the days ahead as investors process the news versus the very bearish near-term temperature outlook, I feel that the initial exaggerated reaction higher increases that chances that natural gas prices are (finally) bottoming. Bottoming is never a pretty process and I still don’t expect that we will see a “v-shaped” recovery. I feel that prices will probably chop around between the current bottom of $1.55/MMBTU and the $1.85/MMBTU level, my calculated Fair Price for the front-month contract. I expect the next catalyst for a sustained move back above $2/MMBTU will be when production shows concrete evidence of a move lower, ideally closer to 100 BCF/day rather than the current 103-105 BCF/day level, as shown in the Figure to the right.

NG is up >>. 14 to 20 cents across the curve

[dan_s]

Trading Economics:
"US natural gas futures rose as much as 9% to $1.75/MMBtu on Wednesday morning, on expectations producers would reduce output in 2024 after prices plunged to a 3-1/2-year low. Antero Resources and Comstock Resources, both significant gas producers, announced plans to reduce gas production in 2024 by approximately 3% compared to 2023. The prices tumbled more than 25% so far this year and touched their lowest since June 2020 at $1.522/MMBtu, driven by near-record production, abundant fuel storage, and above-average temperatures. Additionally, technical issues at Freeport LNG's export facility have limited gas flow to LNG export terminals, and record levels are not expected until the plant returns to full power. This winter's mild temperatures have enabled utilities to increase gas storage, with inventories currently 15.9% above normal levels. Moreover, meteorologists predict that the weather will continue to be milder than normal until March 6."

What's happening this morning is a short covering rally. Paper Traders hold a lot of MAR24 and APR24 short positions that must be closed out before the futures contracts expire because the Paper Traders do not have physical gas to deliver to Henry Hub.

Pull up a 10-year price chart for HH Natural Gas at this link: https://tradingeconomics.com/commodity/natural-gas

What you will see is that U.S. natural gas prices make wild price spikes when you least expect it. Note that the largest percentage price spikes occur outside of the winter months.

See Slide 9 of my Feb 18 podcast. There are four large LNG export facilities expected to come online over the next twelve months. The largest is Plaquemines (Venture Global), which comes online in six months. If Freeport gets back to full capacity, there should be 5 Bcfpd more demand for U.S. natural gas by Q4 2024. Heading into 2025, the U.S. should have 18.6 Bcfpd of export capacity, compared to 13.5 Bcfpd heading into 2024 (with Freeport down to 50% of capacity).

For modeling purposes, I am now assuming that 2024 U.S. natural gas prices average $2.00 in Q1 and Q2, $2.50 in Q3 and $2.75 in Q4.

[Cliff_N]

CRK, AR and EQT all up about 12% on NG news.

[dan_s]

U.S. natural gas prices have a history of becoming oversold and then making a sharp reversal when you least expect it. Today is a classic short covering rally, a gift from the "Paper Traders".

[Fraser921]

It was triggered by one company showing production discipline.