June 4, 2018

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Natural Gas Holds Near Top Of Trading Range As Storage Deficit Versus The 5-Year Average Remains Above -500 BCF; Mid-Summer Heat Across The Plains To More Than Offset Chilly East This Week With Below-Average Storage Injection Expected; LNG Feedgas Suppressed As Maintenance Continues

6:00 AM EDT, Monday, June 4, 2018
As heat built across the Heartland on the first day of meteorological summer, natural gas rebounded from early-session lows to squeak out a 1 cent or 0.3% gain on Friday as the commodity settled at $2.96/MMBTU. Despite an increase in volatility, the front-month July 2018 contract was nearly flat on the week as an extended period of above-average temperatures was countered by rebounding production and lackluster LNG exports. Crude oil, meanwhile, fell another $1.23 or 1.8% on Friday to settle at $65.81/barrel, the lowest close since April 10. The commodity fell 3.1% on the week, adding to the previous week's 4.9% slump. Oil, particularly WTI, continues to come under pressure on anticipation that OPEC and Russia will peel pack some of its production curbs at its June 2018 Summit, attempting to compensate for lost supply out of Venezuela. Despite the mechanizations of OPEC on the worldwide market, Brent oil actually rose by 0.4% last week, settling at $76.79/barrel. As a result, the Brent-WTI spread has ballooned to just under $11/barrel, as shown in the Figure to the right. This is the highest spread since 2015. This should continue to fuel US exports to above 2 MMbbls/day, keeping supply/demand balance reasonably tight and supporting a price bottom somewhere around $65/barrel.

My Oil & Natural Gas Portfolio continues to pull back gently, falling 1.3% last week. Through the first 105 trading days of 2018, the portfolio is up +11.6% or +27.8% annualized, about 4% below the year's highs. I made a total of three trades last week, all of which involved adjusting my bulky natural gas positions. For subscribers, I have published a new Monday Investing Commentary HERE discussing these trades and my trading plan for the week ahead. Subscribers gain access to my realtime portfolio holdings, recent trades and twice-weekly investing commentaries detailing my market outlook and near-term trading strategy on my password-protected Portfolio Page. To learn more about subscribing and helping to support the site, please click HERE.

The EIA will release its weekly Natural Gas Storage Report for the week of May 26-June 1 this Thursday at 10:30 AM EDT. I am projecting a preliminary +89 BCF storage injection which would be 15 BCF bullish versus the 5-year average +104 BCF, the highest average weekly injection of the year, thanks to the combination of the tail end of the shoulder season and the Memorial Day holiday. As the Figure to the right shows, such an injection would be the second smallest injection for the May 26-June 1 period in the last 5 years, behind only a +70 BCF build from 2016. The smaller-than-average injection was driven by record heat across the Heartland, even as the Eastern Seaboard was bogged down by a persistently wet and cool pattern. Overall, the mean population-weighted nationwide temperature for the week averaged 75.2F last week, a substantial 6.1F warmer-than-normal. This drove powerburn to average an estimated 30.4 BCF/day last week, topping 35 BCF/day on at least one day, up by over 6 BCF/day year-over-year due to both the heat and fuel-switching driven by discounted prices. The bullishness of the injection was blunted somewhat by domestic production which, after several weeks of plateauing just under 80 BCF/day amdist ongoing maintenance, rose to a new record high of 80.2 BCF/day last week, up 6.3 BCF/day year-over-year, which neatly counters the year-over-year gain in powerburn. Additionally, the week does include the extended Memorial Day Holiday which likely suppressed industrial and commercial demand over the long weekend, usually adding around +10 BCF to the weekly build. Should a +89 BCF injection verify, natural gas inventories would rise to 1814 BCF while the storage deficit versus the 5-year average would climb to -515 BCF or -22 BCF. Meanwhile, the year-over-year deficit would once again eclipse the -800 BCF level, rising by -14 BCF to -802 BCF. This remains a preliminary projection and will be revised over the next 48 hours as finalized temperature and pipeline data is integrated into my model. Click HERE for more on last week's projected storage injection.

Over the weekend, natural gas storage injections remained comfortably below the 5-year average on Saturday as record heat across Texas and the southern Plaines was countered by a soggy pattern across the Mid-Atlantic and Northeast. By Sunday a Cold Front cleared Texas and much of the Deep South, bringing more seasonal temperatures and weaker nationwide demand. I projected a +10 BCF/day injection on Saturday and a +12 BCF/day injection on Sunday, each below the 5-year average +13 BCF/day build. Starting the work-week, demand will initially weaken as an unseasonably chilly pattern dominates the major population centers of the Northeast as a slow-moving storm system brings heavy rain to the region. Highs today in Washington, DC and Philadelphia will be seasonably cool in the upper 70s, 0F-5F below-average, while New York City will only reach the upper 60s, 10F below-average, and Boston will struggle to break 50F, an impressive 20F colder-than-normal. Elsewhere east of the Mississippi River, readings will be generally within 5F of average, ranging from the low-80s across the Deep South to the upper 60s and lower 70s across the Great Lakes. The hot spot today will be the Desert Southwest where Phoenix, Az could approach 110F today, around 10F hotter than normal. Overall, thanks to the cool conditions across the East, the forecast mean population-weighted nationwide temperature today will fall by 2.0F from Sunday to 70.7F, which is very close to average. Forecast Total Degree Days will dip to 8.4 TDDs today, 0.2 TDDs fewer than normal, but still the 17th most for June 4th 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 +13 BCF/day daily natural gas storage injection, 1 BCF larger than Sunday but still 1 BCF bullish versus the 5-year average +14 BCF/day injection. As a result, by this evening, I expect natural gas inventories to be approaching 1840 BCF while the storage deficit versus the 5-year average settles around -522 BCF. Click HERE for more on today's projected daily injection and Realtime natural gas inventories.

For the remainder of the week, expect natural gas demand to slowly rebound as heat builds across the Plains even as the Eastern Seaboard remains seasonably to unseasonably cool. By Tuesday and Wednesday, highs across the Dakotas will climb into the 90s while by Thursday and Friday brutal heat will overspread Texas with much of Texas and Oklahoma topping 100F. This will help to mitigate the negative impact of highs stuck in the 60s and 70s across the Megalopolis much of the week, although by Friday even this region will recover somewhat into the low 80s. Projected daily injections, as shown in the Figure to the right, will slowly fall from Monday's high of +13 BCF/day falling to +11 BCF/day by Friday and should be at or below the 5-year average each day of the week. Overall, for the week of June 2-8, I am projecting a preliminary +82 BCF storage injection, a slight 7 BCF smaller than the 5-year average +89 BCF build and tied with 2017 for the second smallest injection for the period in the last 5 years behind only, once again, 2016. Should such a build verify, natural gas inventories would climb to 1895 BCF while the storage deficit versus the 5-year average would rise to -525 BCF and the year-over-year deficit would be nearly unchanged at -803 BCF. Click HERE for more on this week's projected natural gas storage injection. The EIA will release its official storage numbers for this week on Thursday, June 14 at 10:30 AM EDT.

In other news, LNG feedgas demand today will be 2.77 BCF/day, with 2.2 BCF/day via Sabine Pass and 0.57 BCF/day of that from Cove Point. Both of these flows are well-below capacity, as they have been for the past 2 weeks. As shown in the Figure to the right, total LNG feedgas demand was just 19.2 BCF for May 26-June 1 last week, down from a peak of over 25 BCF/day in early and mid April. This has loosened supply/demand balance by around 0.8 BCF/day over this period. At this time, I am projecting another week of soft demand at 19.4 BCF. Both facilities continue to be undergoing maintenance, likely suppressing what is a crucial element of natural gas demand needed to counter rising production. Click HERE for more on LNG feedgas demand.