Natural Gas Storage Report - June 27

[dan_s]

Working gas in storage was 2,533 Bcf as of Friday, June 21, 2013, according to EIA estimates. This represents a net increase of 95 Bcf from the previous week. Stocks were 522 Bcf less than last year at this time and 31 Bcf below the 5-year average of 2,564 Bcf.

This was a bearish report for natural gas. Demand for more power generation and hurricane activity are primary catalysts this time of year. We should see lower injections starting next week. If not, then NG price is likely to dip below $3.50. - Dan

From CME Group website on June 28:
Nat Gas futures are trading either side of unchanged at the start of the last trading day of the week and the quarter. Nat Gas is not only heading for a loss for the week but is heading for over a 10 percent loss for the second quarter as the slow start to the summer cooling season has now wiped out all of the price gains from the late winter rally. Nat Gas prices are very dependent on the weather. There is basically no correlation between the direction of Nat Gas prices and all of the external macro data and moves that impact most risk asset markets including the oil complex. Nat Gas is a localized commodity centric to the US as imports and exports play a very small role in setting price direction. At the moment the US fundamental picture for Nat Gas remains biased to the bearish side.

As I have been discussing for weeks in the newsletter there is very little out of the ordinary weather related support for the Nat Gas markets. The temperatures are neutral at best (viewed across the entire US), nuke outages are minimal compared to last year and the five year average and the tropical weather season has yet to really get started.

The latest NOAA six to ten day and eight to fourteen day forecasts are still showing about a third of the nation expecting above normal temperatures (mostly the west coast and then spreading to the upper tier of the US) with the rest of the country expecting below normal to only normal summer temperatures. These forecasts suggests that the level of cooling demand will not be strong enough to have a material impact on Nat Gas consumption for weather related power generation. As such I continue to expect the next several (possibly more) weekly inventory injection reports to outperform the historical data and thus narrow the deficit in inventory versus last and likely eliminate the deficit versus the more normal five year average.

The technicals are also bearish as the spot contract has breached yet another support level of $3.58/mmbtu and has filled the gap that was just below the aforementioned support level. The Aug contract is trading at a level not seen since the early part of February or prior to the start of the late winter price rally. If the new resistance level of $3.58/mmbtu holds the next level of major support is not until the $3.40/mmbtu level. From a technical perspective the market remains in a short term bearish trend.

[dan_s]

Shoulder seasons are the doldrums for the gas market. Since there is usually no weather related uptick in demand, market watchers focus on storage injections. If storage levels are judged to be too high during the shoulder months then price weakness can easily continue into the fall. Prices tend to tick up as summer heats up and air conditioning use increases gas demand for generation. But the longer that summer demand fails to soak up any storage surplus the weaker the market stays.

On a brighter note (for producers, that is), long-term prospects for natural gas demand in the US continue to improve. Power burn received a huge shot in the arm this week from the Obama Administration pronouncements on goals to reduce carbon emissions with yet more restrictions on coal plants expected (see also Smokestack Lightning). Analysts are predicting that coal plant retirements could create an additional 3-8 Bcf/d of natural gas demand for power burn. Equally good news for producers is the significant number of industrial plants that are being planned for construction over the next 5 years here in the US. At the recent Benposium conference Bentek analysis pointed to a healthy 5 Bcf/d potential incremental gas demand from US industrial sector projects. These industrial plants provide year round demand and are not so dependent on the weather. The use of natural gas instead of coal for baseload power generation will also increase year round consumption. And lets not forget liquefied natural gas (LNG) export terminals that should start to come online by 2015. These new demand sources will all help to smooth out traditional shoulder season demand patterns and support gas prices year round.

Full Article: http://www.rbnenergy.com/put-your-head- ... d-doldrums