March 5, 2018

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In Like A Lion: Active March Weather Pattern to Drive Colder Temperatures And Boost Natural Gas Demand This Week & Next, Though Any Rallies Likely To Be Capped By Approaching Shoulder Season; Great Plains Blizzard To Pound Heartland Today As Gas Demand Slowly Rises & Inventories Drop Below 1600 BCF For The First Time In 3 Years

6:00 AM EDT, Monday, March 5, 2018
Natural gas wrapped up another low-volatility week, falling less than a penny or 0.1% to settle at $2.70/MMBTU. The commodity gained a slim +1.4% on the week. After a winter filled with exceptional volatility, the natural gas market has calmed significantly as the heating season draws to a close. Since plunging from a multi-year high of $3.63/MMBTU on January 29 to $2.70/MMBTU just 8 sessions later, the commodity has been comparatively tightly range-bound between $2.55/MMBTU and $2.70/MMBTU for nearly a month. Investors seem to have finally priced in the expected impacts of record production in the setting of a 300 BCF storage deficit. This deadlock was supported by Friday's CFTC data which showed that NYMEX money manager positions for the week ending Tuesday, February 27 were little changed with a 14,139 contract decline in long positions nearly offset by a 14,505 contract decline in short positions. Overall, the commodity is trading within 2% of 2015 natural gas prices day-and-date, which finished its withdrawal season at 1468 BCF, within 50 BCF of my projected 2018 season-ending inventory level of around 1420 BCF, suggesting that end-of-season prices are nearly fairly valued. However, this is just a single data point and my long-term Natural Gas Fair Price Model, which uses data for the past 5 years, continues to calculate a 29.7% 8-month undervaluation versus a Fair Price of $3.97/MMBTU based on current and projected inventories, which could bode well for the commodity later this spring into the summer. Near-term, however, natural gas could see some support early this week, potentially pushing prices above $2.75/MMBTU as forecasts have trended colder for the March 7-15 timeframe and at least a temporary return to bullish daily withdrawals is likely. However, with the EIA expected to announce a very bearish storage withdrawal last week in this Thursday's Storage Report, the latter half of March looking warmer-than-normal and the impact of record production likely to soon be unmasked as heating demand falls, sustained gains will likely be limited and I do not expect natural gas to trade above $3.00/MMBTU any time soon.

Turning to crude oil, WTI rose 26 cents or 0.4% on Friday to settle at $61.25/barrel, but this was not enough the blunt a 3.6% weekly decline. Oil was weighted down fundamentally after the EIA reported a (still bullish versus the 5-year average) +3.0 MMbbl storage build and geopolitically by President Trump's announcement of steel and aluminum tariffs that could threaten demand. Despite the build in inventories, the crude oil storage surplus versus the 5-year average, which has been in place since October 3, 2014, has now fallen to a mere +5.4 MMbbl and seems destined to flip to a storage deficit within the next 2-3 weeks. The last time crude oil inventories were in at a deficit, WTI was priced at $89.74/barrel. With the surge in domestic oil infrastructure since then and OPEC members artificially suppressing their own supply, $89.74/barrel is not per say a Fair Price for oil, but should current trends continue, oil could certainly trade higher and I maintain a $70/barrel 6-month price target on the commodity.

My Oil & Natural Gas Portfolio rose +0.2% on Friday to push gains since May 1, 2017 back up to +39.9%, but it was not enough to prevent a weekly loss of -0.6%, the portfolio's first since of 2018. The portfolio is still up +6.8% so far in 2018, or +41.3% annualized. I made a total of 3 trades on the week, putting a portion of my large cash position to work. For subscribers, I have published a new Monday Investing Commentary HERE detailing my market outlook and trading strategy for the week to come. As a reminder, subscribers gain access to my realtime portfolio holdings, recent trades and twice-weekly investing commentaries. It is support from subscribers that drives over 95% of revenue to the site and allows me to continue updating and improving upon the site. To learn more about subscribing and helping to support the site, please click HERE. To current subscribers, this page is now protected by a new March password. You should have received an email with the password. If you did not, please let me know at CelsiusEnergyFM@gmail.com. Thank you to all of you who have subscribed and continue to support the site.

The EIA will release its weekly Natural Gas Storage Report for the week of February 24-March 2 this Thursday at 10:30 AM EDT. I am projecting a preliminary -60 BCF inventory drawdown for the week, an ugly 69 BCF smaller than the 5-year average -129 BCF. The bearish projected withdrawal was driven by consistently warmer-than-average temperatures throughout the week that suppressed natural gas heating demand. The population-weighted mean nationwide temperature averaged 51.6F last week, more than 7F warmer-than-average. Withdrawals were negatively impacted by US production which likely grew to a new record high of 78.5 BCF/day last week, up 0.4 BCF/day week-over-week and 7.4 BCF/day year-over-year. Natural gas demand did get a boost from LNG feedgas demand which rose 4.5 BCF week-over-week to 22.0 BCF after flows to the new Cove Point export plant jumped and Sabine Pass deliveries rebounded. Should a -60 BCF withdrawal verify, natural gas inventories would fall to 1622 BCF while the storage deficit versus the 5-year average would contract to -303 BCF. The year-over-year deficit would rise by 3 BCF to -683 BCF, and will likely surpass -700 BCF early this week. As the Figure to the right shows, a -60 BCF draw would be the second smallest in the last 5 years, just ahead of 2017's -57 BCF draw. In contrast, 2015 saw a massive -216 BCF withdrawal. This remains a preliminary projection and may be revised over the next 72 hours as finalized temperature and pipeline data is integrated into my model. Click HERE for more on this week's projected withdrawal.

Over the weekend, daily natural gas storage withdrawals hovered just below the 5-year average as more seasonal temperatures across the East in the wake of Friday's major wind event were countered by a surge of warmth across the Plains and Midwest ahead of the next big winter storm. Daily storage draws were near -12 BCF/day both Saturday and Sunday, just below the 5-year average -14 BCF/day. Natural gas demand will inch only slightly higher today as a similar set-up remains in place. The nationwide weather pattern today will be driven by a powerful storm system that will bring blizzard conditions across the Dakotas and heavy, wet snow to much of Minnesota, Iowa, and Wisconsin spreading into Illinois and Michigan overnight. Minneapolis could receive up to a foot of March snow today, heavy even by their standards. Despite the heavy snow, temperatures will actually above-average today across this entire region with Minneapolis sitting right around 32F throughout the storm and even the upper 20s to lower 30s on the traditionally colder back side of the storm over the Dakotas, 5F-15F warmer-than-normal. Further south, much of Texas, Oklahoma, and Arkansas will reach the upper 60s to lower 70s, 10F-15F above-average. The East Coast, and particularly the Mid-Atlantic, will help support natural gas demand as highs today will be seasonally cool across most of the region. Areas from Norfolk, Va to Richmond, Va extending up into the Washington, DC metro area will only reach the mid-40s, around 10F below average, as the powerful storm from late last week continues to spin offshore and impact coastal weather. Further north, Philadelphia, New York City, and Boston, will all reach the low-to-mid 40s, right at seasonal averages, though after the recent warm stretch, such conditions will likely feel quite chilly. Overall, the forecast mean population-weighted nationwide temperature today will be nearly unchanged from Sunday at 47.5F, 1F warmer than normal. Total Degree Days today will be 18.2 TDDs, 1.1 TDDs fewer than normal and the 16th fewest TDDs for March 5 in the last 37 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 natural gas storage withdrawal, 1 BCF larger than Sunday's draw, but still 1 BCF bearish versus the 5-year average withdrawal. Based on these projections, realtime natural gas inventories dropped below 1600 BCF early this morning for the first time since April 15, 2015, nearly 3 years ago. By the end of the day today, inventories will be near 1588 BCF, or around 293 BCF bearish versus the 5-year average. Click HERE for more on today's projected daily natural gas storage withdrawal and realtime inventories.

Today's powerful Plains blizzard will continue to influence the weather and temperature pattern for the remainder of the week as a highly active pattern remains in place. Behind this system, colder air will steadily advance southward. By Wednesday, at or below-average temperatures will dominate all areas east of the Rockies with the exception of far northern New England. The same storm system impacting the Plains today will redevelop off the East Coast on Wednesday and could deliver a burst of heavy, wet snow to Philadelphia, New York, and Boston by Thursday morning. As a result, projected daily natural gas storage withdrawals will climb back above the 5-year average by mid-week, reaching around 17 BCF/day for both Wednesday and Thursday, 3 BCF/day bullish. Projected daily natural gas storage withdrawals are shown in the Figure to the right. Despite the colder temperatures to finish the week, I am projecting a near-average -96 BCF storage withdrawal for March 3-9, still 1 BCF bearish versus the 5-year average, the 4th straight bearish weekly withdrawal, though just by a hair. It would be the third weakest withdrawal for the March 3-9 period in the last 5 years. Should a -96 BCF withdrawal verify, natural gas inventories would fall to 1527 BCF while the storage deficit versus the 5-year average would contract to -301 BCF. However, the year-over-year deficit would top -700 BCF and finish the week at an impressive -723 BCF or -31%. It would be the largest year-over-year deficit since June 6, 2014. The EIA will release its official storage numbers for this week on Thursday, March 15 at 10:30 AM EDT. See more on this week's projection on my weekly natural gas storage page HERE. Look for colder-than-average temperatures to expand next week and it is likely that inventories will see their first bullish weekly withdrawal in a month for the week of March 10-16, currently pegged somewhere around -75 BCF.