June 19, 2017

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Natural Gas Poised To Drop On Monday After Near-Term Temperature Forecast Cools Even As Commodity Remains Undervalued; Gas Demand To Weaken But Remain Above-Average As Heartland Cools While Southwest Bakes; Tropics Roar to Life With Two Early-Season Systems, But Significant Impacts On Gulf Infrastructure Not Expected

6:00 AM EDT, Monday, June 19, 2017
I will be back on Wednesday with a full discussion of Monday's natural gas beatdown and the opportunities it provides, but in the meantime I wanted to let you know that I am now publishing comprehensive natural gas supply and demand data and analysis on the site. The data is for the most recent natural gas storage week sourced from the EIA's Weekly Natural Gas Update and my own collections. It includes natural gas production, powerburn, LNG imports and exports, Canadian imports, and Mexican exports. It is updated on Thursday afternoon between 12 pm and 1 pm EDT.

The data can be accessed via This Link or as a new sub-header on my Natural Gas Main page. Please let me know at CelsiusEnergyFM@gmail.com what you think of the data or if you have any thoughts, concerns or critiques.

You can read the entirety of Monday's Daily Commentary by clicking the link below. On Friday, the Commodity Futures Trading Commission (CFTC) released its weekly report detailing money manager oil and natural gas positions on the NYMEX as of June 13. The CFTC showed that natural gas investors continued to liquidate long positions and build short positions. Among speculative traders on the NYMEX, long contracts fell by 5,332 week-over-week to 279,690 contracts, the lowest since March 14, 2017, while short positions rose by 10,448 contracts to 198,865, the highest since September 6, 2016. As a result, the natural gas bullish sentiment--the percentage of contracts held long--fell by 3 percentage points week-over-week to 58%, the lowest since February 28. NYMEX long and short positions are shown in the Figure to the right. While investors have undoubtedly become more bearish towards natural gas over the past month with the Bullish Sentiment plunging from 80% to 58%, weak longs have been successfully weeded out and the Bullish Sentiment is now under the 52-week average of 61%. With fewer longs to liquidate and more and more shorts piling into the trade (despite reasonably favorable fundamentals), I expect significant, sustained downside to be limited while volatility could increase. See more on Natural Gas Trader Positions HERE. With crude oil reaching new 2017-lows, oil investor sentiment unsurprisingly continues to sour. While the CFTC reported a surprising week-over-week 9,035 contract rise in long positions, short positions surged by a massive 41,998 contracts to 148,565. As a result, the oil Bullish Sentiment fell by 6 percentage points to 68%. This is 6 percentage points below the 52-week average and 12 percentage points above the 52-week low. The crude oil bullish sentiment has been as high as 91% this past winter. See more on Crude Oil Bullish Sentiment HERE.

The EIA will release its Natural Gas Storage report for June 10-16 this Thursday at 10:30 AM EDT. I am projecting a preliminary +57 BCF weekly storage injection. Such a build would be an exceptionally bullish 24 BCF smaller than the 5-year average and 6 BCF smaller than last year's injection. As the Figure to the right shows, it would be the most bullish injection in the last 5 years, topping last year's build and would be nearly half of 2014's +111 BCF on the bearish side of things. The bullish injection was driven by above-averaged temperatures which, on a population-weighted basis, averaged 76.1F last week, over 5F warmer week-over-week and nearly 3F warmer-than-normal. It was the warmest week since the week ending September 2, 2016. As a result, I estimate that natural gas powerburn aveaged 30.3 BCF last week, peaking as high as 33 BCF on Monday, a new 2017 high. Demand was also supported by LNG feedgas demand to Sabine Pass which reached 15.3 BCF, nearly unchanged from the 15.5 BCF the previous week. Despite the strong showing, I recorded only two LNG tankers arriving in port this past week, the Maran Gas Hector and Creole Spirit, well below the average of 3-6 tankers/week. This may have contributed to feedgas deliveries dropping to just 1.7 BCF/day on Sunday and then 1.5 BCF/day today, down from an average of 2.2 BCF/day last week. See more on LNG feedgas and exports HERE. Should a +57 BCF natural gas storage injection verify, natural gas inventories would rise to 2766 BCF while the storage surplus versus the 5-year average would drop to +203 BCF, a decided break below the 4-month range of +225 BCF to +300 BCF. See more on this week's projection on my Weekly Storage Page HERE. This remains a preliminary projection and will be revised further over the next 48 hours as finalized pipeline and temperature data is integrated into my model.

Over the weekend, natural gas demand held well-above average as record or near-record heat built across California, the Desert Southwest, and the Southern Plains, all of which saw triple-digit heat. Daily injections averaged between +5 BCF/day to +6 BCF/day over the weekend, just half the 5-year average +10 BCF/day. Natural gas demand will weaken today and during the first portion of the week due to a cooling trend across the Heartland, even as record-setting heat dominates the West. Starting with the latter, high temperatures will approach 120F in Phoenix, Az today, among the top-5 highest ever recorded in the city and around 12F warmer than average, while highs in the upper 100s and lower 110s will stretch from Fresno to Redding in California's Central Valley, nearly 20F warmer-than-average in some areas. Even the Pacific Northwest will get into the game with highs reaching the low-to-mid 80s in Seattle and Portland, respectively. This will boost powerburn regionwide, although that powerburn will be distributed among natural gas, hydroelectric, and solar generation, muting the gain in natural gas demand compared to if a similar heatwave had occurred in Texas, the Midwest, or Northeast. Elsewhere, temperatures will remain seasonally cool across the Heartland with highs in the 70s from Oklahoma to the Dakotas, 5F-10F cooler-than-average. Highs will fall by 5F-10F day-over-day across Texas into the mid-80s north and low-90s south and by 5F-15F across the Northeast with New York City, Philadelphia, and Washington, DC only reaching the upper 70s to lower 80s, near average, with potentially heavy rain possible with flash flood watches in effect across much of the region. As a result of this cooling trend, the forecast mean population-weighted nationwide temperature will drop more than 1F day-over-day to 76.7F, still 2.3F warmer than average. Total Degree Days will fall over 1 TDD day-over-day to 11.7 TDDs, still 0.3 TDDs greater than normal. It would be the 13th most TDDs for June 19 in the last 37 years since 1981. See more on today's temperature and degree day outlook HERE. Based on this outlook and early-cycle pipeline data, I am projecting that natural gas demand will fall 2 BCF day-over-day with a +7 BCF/day daily storage injection, still 3 BCF smaller than the 5-year average +10 BCF/day build. See more on today's projected natural gas storage injection and intraday inventory levels HERE.

Natural gas demand will steadily fall over the next few days as the eastern 2/3rds of the nation remain seasonal and the West cools off. Projected daily storage injections look to climb as high as +8 BCF/day by Wednesday, still 2 BCF bullish versus the 5-year average. Demand could then rebound by the end of the week as temperatures rebound across the East. Based on this outlook, I am projecting a +46 BCF weekly storage injection for June 17-23, a strong 26 BCF bullish versus the 5-year average, 3 BCF larger than Friday's projection and 5 BCF larger than last year's build. It would be the second largest storage injection in the past 5-years--and the past 23 years, for that matter--behind only last year's +41 BCF build.

The complicating factor to this projection will be unusual early-season tropical activity. Yesterday evening, the National Hurricane Center (NHC) issued its first advisory on "Potential Tropical Cyclone 2" or pre-Brett, the first time that the Center has used this designation. A Potential Tropical Cyclone is a system that appears well on its way to becoming a named system with wind speeds of tropical depression or tropical storm force, but fails to satisfy certain criteria, in this case, a definitive low level center. As of 11 pm EDT, this system was centered 630 miles east of Trinidad in the southernmost Lesser Antilles and had wind speeds of 40 mph. By the time you read this Monday morning, the system very well may have already been named Tropical Storm Brett. It is a very unusual location for June tropical cyclones to develop. In fact, there have only been two tropical storms or hurricanes in this region before in June, a 1933 hurricane and 1979's Tropical Storm Ana. While pre-Brett could intensify into a moderate tropical storm and will likely bring heavy rain and gusty winds to Barbados and St Vincent and the Grenadines where Tropical Storm Watches are in effect late Monday and early Tuesday, the storm is not long for this world as a rapid increase in wind sheer in the eastern Caribbean should be enough to obliterate the storm long before it reaches the US. However, it is worth mentioning that tropical activity across the Caribbean and central Atlantic in June and July does historically predicate an above-average hurricane season.

More pertinent to the US and the Gulf of Mexico's oil and natural gas infrastructure, is the system that the NHC has designated Invest 93 or "proto-Cindy". This sprawling system, located in the Northwestern Caribbean just east of the Yucatan Peninsula is drifting north-northwest and will enter the southern Caribbean over the next 24 hours. The system has a large area of disorganized showers and thunderstorms rotating around a poorly defined low pressure center. While the computer models are highly confident that the system will develop into a tropical storm--the NHC is giving the system an 80% chance to develop into a depression or storm within 48 hours--there is considerable uncertainty regarding its path and peak intensity. While sea surface temperatures are plenty warm to support a strong tropical storm or even low-grade hurricane, wind sheer will increase as the system tracks north into the Gulf. Further, 93L is very large and such storms tend to be slow to spin up and intensify. Regarding the track, the European model suite takes the system over the western gulf towards northern Mexico or Texas while the American GFS pulls it further east towards Louisiana, Alabama, Mississippi or Texas. The latest computer model guidance for the system is shown in the Figure to the right. Regardless, the main impact of 93L/Proto-Cindy will be heavy rain. As a result, temperatures will likely cool into the 70s on multiple days wherever Cindy makes landfall. This, combined with possible power outages will dramatically cut natural gas powerburn across affected areas, likely outweighing any decrease in Gulf of Mexico production due to rig shut ins. Stay tuned.