April 23, 2019

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Natural Gas Bounces Off 3-Year Lows On Cooling Near-Term Temperature Outlook While Oil Soars To New Highs On Expiration Of Iranian Import Waivers; Gas Demand To Remain Well Below-Average Today As Triple Digit Weekly Build Remains On Track; Growth In LNG Demand Countered By Lackluster Nuclear Maintenance Season

6:00 AM EDT, Tuesday, April 23, 2019
Natural gas finally saw its long-awaited bounce on Monday following a week in which the commodity lost a steep 6% and fell to a nearly 3-year low. The commodity rose 3 cents or 1.4% on Monday to settle at $2.52/MMBTU, helped by a near-term temperature outlook that trended slightly cooler for the April 28-May 4 period over the weekend. It was the largest single-session gain for the sector since April 8.In the grand scheme of things, the changes in the near-term temperature outlook are essentially inconsequential for the broad storage outlook and were just an excuse for shorter sellers to take profits and dip buyers to try their luck. In fact, I would argue that the past 72 hours were net negative for natural gas as oil's waiver expiration-driven spike will only boost drilling activity and lead to an increase in associated-gas production over the longer term. While I am long the commodity and appreciated the bump, I do not see this move as sustainable and am planning to cash out in the $2.55-$2.60/MMBTU range.

Meanwhile, crude oil prices soared to new highs as the White House confirmed that it would end waivers on countries importing Iranian crude oil. Even a tweet by Donald Trump attempting to reassure the market that OPEC would easily make up the difference was unable to blunt the bullish momentum. The new WTI front-month contract--June 2019--rose $1.48 or 2.3% to settle at $65.55/barrel while Brent rose $2.07 to $74.04/barrel. With the move, the commodity is well above my $65/barrel WTI price target. Nonetheless, I did not take the opportunity to take profits yesterday as I had planned. I was impressed with commodity's ability to attract new buyers and hold onto its gains throughout the session, despite the Trump tweet. I will likely hold through Wednesday's Petroleum Status Report in hopes of seeing an upward trend in refinery demand.

My Oil & Natural Gas Portfolio quickly erased last week's late losses, rising +0.7% to push 2019 year-to-date gains to +12.7%, just under a 2019 year-to-date high, or +42.1% annualized. I made no trades on Monday, but am closely monitoring the oil sector and will continue to have a low threshold to take profits on my long position via short DWT. Click HERE for more on my current oil and natural gas holdings.

Natural gas demand will inch higher today but will remain significantly below average as mild temperatures dominate the Eastern two thirds of the nation yet again. As a potent spring storm moves out of Great Lakes, temperatures will rebound across Minneapolis, Mn to Sioux Falls, SD to Omaha, NE with some areas seeing day-over-day rises of 15F-20F with readings in most areas in the upper 60s to lower 70s. Along the eastern Seaboard, Washington, DC and Philadelphia could top 80F while New York City reaches the mid-60s, 5F-10F warmer than normal. Behind a backdoor cold front, Boston could be cooler with readings only in the mid-50s. Across the South, highs could reach the mid-to-upper 80s in Richmond, VA, Raleigh, NC and Columbia, SC, 10F warmer-than-normal, and enough to stimulate some early-season cooling demand. However, this will be countered by chilly readings across Texas, Oklahoma, and Kansas, which will only reach the 60s and 70s, 5F-10F colder-than-normal. Overall, today's forecast mean population-weighted mean nationwide temperature will rise another 1.2F from Monday to 64.6F, 4.9F warmer-than-normal. Today's total degree days (TDDs) will rise slightly 5.2 TDDs thanks to a rise in cooling degree days, but will still be 3.3 TDDs fewer than normal and the 2nd fewest for April 23 in the last 38 years since 1981. Click HERE for more on today's temperature and degree day outlook.

Based on this forecast and early-cycle pipeline data, I am projecting a +18 BCF/day daily natural gas storage injection, around 1 BCF smaller than Monday's 2019-high build but still nearly 8 BCF bearish versus the 5-year average. Projected Realtime natural gas inventories will top 1400 BCF by late afternoon today and will finish the day near 1404 BCF. Storage will top 1400 BCF 9 days earlier than in 2018 when the level wasn't breached until May 2. The storage deficit versus the 5-year average will contract to -340 BCF while the year-over-year surplus will build to +98 BCF before reaching triple digits overnight tonight. Click HERE for more on today's projected daily storage injection and Realtime natural gas inventories.

While storage injections have been bearish thanks to the unfavorable weather pattern, they could undoubtedly have been worse were it not for a recent jump in LNG feedgas demand. After two weeks of very soft deliveries due to prolonged maintenance at Sabine Pass, feedgas demand spiked over the weekend, increasing by around 2.5 BCF/day from the recent lows, to very close to all-time highs near 5.6 BCF/day before dipping to start the work-week. Additionally, the Cameron LNG plant has begun taking on feedgas as part of its commissioning process. Flows to the 1.4 BCF/day plant have averaged just 0.1 BCF/day over the past week, but when demand to the facility picks up, total US LNG capacity will have eclipsed 6.0 BCF/day for the first time. However, total LNG feedgas for Tuesday will drop sharply from the weekend's levels as flows to Corpus Christi look to drop today from over 0.8 BCF/day to just 0.1 BCF/day, dropping total demand to around 4.3 BCF/day, as shown in the Figure to the right. The reason for this dropoff in early-cycle demand is unclear at this time. Nonetheless, total LNG demand is still up a robust 1.8 BCF/day from 2018. Additionally, total feedgas this week is projected to rise to 36.2 BCF/day, up 2.7 BCF from the previous week, up 13.5 BCF from 2018, and just below the record weekly high. Click HERE for more on the latest LNG feedgas data, updated daily each evening.

On the other hand, some of these temperature-independent gains in LNG demand have been countered by a lackluster start to the nuclear maintenance season. During April and May, nuclear reactors are typically shut down for repair and refueling with natural gas stepping up to replace the lost electricity generating capacity. This represents an important source of demand during the traditionally slow Shoulder Season. However, through Monday, total outages were just 401 GWh or 16.8% of US capacity. This is 11% below 2018 and 16% below the 5-year average, as shown in the Figure to the right. As a result, natural gas substitution demand stands at a mere 3.34 BCF/day, down around 0.6 BC/day from both last year and the 5-year average, negating more than 1/3rd the growth in LNG feedgas demand and helping to support a nearly 3 BCF/day year-over-year loosening in supply/demand balance. It is for this reason that I am expecting a series of triple digit storage injections over the next 6 weeks, which will likely put a cap on any rally in natural gas. Click HERE for more on the latest nuclear outage data, updated daily each morning.