September 25, 2019

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On Monday, natural gas fell sharply at the open, only to recover the majority of its losses. On Tuesday, the opposite happened. Natural gas rose 2% in early-morning electronic trading to near $2.60/barrel/MMBTU as investors cheered the potential for an early-October cold snap.

6:00 AM EDT, Wednesday, September 25, 2019
On Monday, natural gas fell sharply at the open, only to recover the majority of its losses. On Tuesday, the opposite happened. Natural gas rose 2% in early-morning electronic trading to near $2.60/barrel/MMBTU as investors cheered the potential for an early-October cold snap. But with the rest of October still looking mild, prices were unable to hold these gains and the commodity slid throughout the session and ultimately finished down 3 cents or 1% at $2.50/MMBTU. Nonetheless, the 14-day accumulated Gas-Weighed Degree Day (GWDD) outlook continues to look above-average and has trended higher over the past 48 hours, as shown in the Figure to the right. Meanwhile, crude oil continues to quickly give back more of last week's record-setting spike. WTI fell $1.35 or 2.3% to close at $57.29/barrrel while Brent lost $1.67 to $63.10/barrel. The commodity faces continued profit-taking pressure on news that Saudi Arabia was (reportedly) rapidly restoring production following last week's attacks and that Iran would be open to possible tweaks to the 2015 nuclear deal that could result in a relaxation of sanctions. Thanks to the drop in prices of both commodities, my Oil & Natural Gas Portfolio pulled back from Monday's 2019 highs, falling -1.2% yesterday to reduce 2019 gains to +15.0%, or +20.5% annualized. I made no trades on the session. At this time, my sentiment towards both sectors is unchanged. Despite expectations for a mild October, natural gas at or below $2.50/MMBTU is undervalued according to my Fair Price Value, even accounting for inventories that are up +430 BCF year-over-year and rising. While prices could fall further, I expect largely rangebound trading between $2.50/MMBTU and $2.70/MMBTU near-term as investors wait for the next catalyst, be it bullish or bearish, likely in the form of the temperature outlook for the beginning of the heating season. I remain bullish on crude oil despite the pullback and, with a Fair Price based on current inventories alone topping $64/barrel and my projections targeting inventories below 380 MMbbls by the end of the year, I am maintaining a $70/barrel price target on the sector. I feel that prices under $57.50/barrel represent a good buying opportunity for the long-term investor.

The EIA will release its weekly Petroleum Status Report for September 14-20 this morning at 10:30 AM EDT. After the close of trading on Tuesday, the American Petroleum Institute (API) announced that it was expecting a disappointing +1.4 MMbbl inventory build for the week, 3.9 MMbbls bearish versus the 5-year average -2.5 MMbbl draw. After 4 straight draws during August, it would be the second straight weekly build. Should it verify, inventories would rise to 418.5 MMbbls while the newly minted storage deficit versus the 5-year average would again flip back to a +0.5 MMbbl surplus. Storage would be up +22.5 MMbbls year-over-year. Meanwhile, the EIA expects neutral results from refined products inventories. Gasoline stocks could rise +1.9 MMbbls, 0.8 MMbbls bearish versus the 5-year average, which will be largely offset by a -2.2 MMbbl draw in distillates, 1.0 MMbbls bullish versus the 5-year average. On the news, the November 2019 front-month contract dropped under $57/barrel. Honestly, this would be a rather disappointing report and could certainly lead to a further near-term dip in prices. Nonetheless, with oil still heavily discounted versus its Fair Price and October through December shaping up to see record exports, it is unlikely that my sentiment towards the commodity will change. Check back after 10:30 AM EDT on my Crude Oil Inventories Page HERE for the official EIA storage numbers.

Natural gas demand will hold nearly steady today with little change to the overall pattern. Above-average temperatures will persist across the densely-populated Eastern Seaboard, spurring some late-season cooling demand, while more seasonal readings will dominate the Midwest, Great Plains, and West, suppressing both heating and cooling demand in these areas. Atlanta, GA will near 90F today while Washington, DC, Philadelphia, and Boston will be near 80F, all nearly 10F warmer-than-normal. The heat will also extend west to Texas where Dallas could reach the mid-90s and north to the eastern Great Lakes where Detroit could top 80, both also 10F warmer-than-normal. On the other hand, Omaha, Minneapolis, Boise, and Salt Lake City will all see highs only in the mid 70s, within 5F of normal. And late-summer hotspot Phoenix, AZ will only reach the mid-to-upper 80s today as scattered heavy thunderstorms associated with a surge of tropical moisture continue to dominate the area. Overall, today's forecast mean population-weighted mean nationwide temperature will fall -0.5F from Tuesday to 71.9F, which is still an impressive 4.4F warmer-than-normal. Total Degree Days (TDDs) will fall to 7.7 TDDs today, 0.9 TDDs greater than normal and the 16th most for September 25 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 +15 BCF/day, nearly unchanged from Tuesday and 3 BCF bearish versus the 5-year average +12 BCF/day. Overnight, projected Realtime natural gas inventories reached 3247 BCF, eclipsing 2018's end-of-season peak more than 6 weeks ahead of last year's pace. By tonight, expect storage levels to reach 3262 BCF. At this time, I am projecting inventories to max out near 3770 BCF by the first week of November, an impressive +525 BCF higher than last year but only a slight +43 BCF bearish versus the 5-year average. Click HERE for more on today's projected injection and Realtime natural gas inventories.