September 8, 2017

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Natural Gas Rebounds To Start The Week While Oil Pressured Ahead Of OPEC Meeting; Tropical Storm Franklin Makes First Of Two Landfalls In Mexico, But Should Stay South Of US Oil & Natural Gas Infrastructure; Long-Term Temperature Forecast Moderates

6:00 AM EDT, Tuesday, August 8, 2017
Natural gas pulled out of its nosedive on Monday, gaining 3 cents or 1% to at least temporarily stabilize after its recent sell-off and settle at $2.80/MMBTU to open the week. This was likely a relief rally more than anything, as there was no substantive change in the near-term temperature forecast over the weekend, which continues to call for a prolonged period of unseasonably cool temperatures for the next week before temperatures slowly moderate. Nonetheless, even after the small gain and weak temperature-driven demand forecast, natural gas remains sharply undervalued, trading at a 13.3% discount based on current inventories alone and 15.6% based on long-term projections averaged over the next 8 months. The question now is: can natural gas make it 2 days in a row, something the commodity hasn't pulled of since July 18? Stay tuned.

Crude oil, meanwhile, came under pressure ahead of an OPEC meeting in Abu Dhabi, UAE, losing 19 cents or 0.4% to close at $49.39/barrel, but did finish well off the day's lows when the commodity was down nearly 1.5% during the first three hours of trading. The OPEC shindig should shed light on current and future compliance with production curbs and whether or not previously-exempt Libya will agree to cap its supply. We will then get further insight into the domestic supply/demand picture with Wednesday's EIA Petroleum Report.

My Oil & Natural gas portfolio snapped its own losing streak on Monday, climbing 0.4% for its first daily win in 6 trading days, boosting gains since May 1 to 8.1%. This is still nearly 5% below its year-to-date high. Click HERE to view my current holdings and weekly trading outlook (for subscribers) or HERE to learn more about subscribing and supporting the site.

Natural gas demand will hold near the lows for the current storage week as temperatures remain well below-average across most of the nation today. With the exception of Florida, the entire nation east of the Rockies will see highs 5F-15F cooler than normal with the core of the chill centered across the central Plains extending into the Deep South. Highs from Oklahoma City to Jackson, Ms will only reach the upper 70s to around 80F today, around 15F cooler than average, suppressing powerburn across one of the primary summertime sources of demand. Elsewhere, highs will only be in the low 70s from the Great Lakes into the interior Northeast, around 10F cooler than normal, while Philadelphia and New York City could possibly reach 80F, "only" 5F below average. Supporting demand somewhat will continue to be the Pacific Northwest where highs in Portland, Or will reach the low-to-mid 90s today and Seattle will climb into the upper 80s, around 10F hotter than normal for each. Overall, the forecast mean nationwide population-weighted nationwide temperature today will rise by around 0.2F day-over-day to 74.8F, still nearly 2.5F cooler than average. Total Degree Days will likewise inch higher to 10.1 TDDs today, still 3.8 TDDs fewer than normal and the 7th fewest for August 8 in the last 37 years. Click HERE for more on today's temperature and degree day outlook. LNG feedgas demand to Sabine Pass looks to hold steady at 1.8 BCF/day today, down 0.9 BCF/day from the all-time high of 2.7 BCF/day set 2 weeks ago while natural gas powerburn should climb back above 30 BCF/day today.

Based on this forecast and early-cycle pipeline data, I am projecting a +8 BCF daily storage injection today, down less than 1 BCF day-over-day and 1 BCF bearish versus the 5-year average +7 BCF/day. Click HERE for full details on today's daily storage projection and intraday natural gas inventories.

In other news, the National Hurricane Center began issuing advisories on Tropical Storm Franklin located in the northwest Caribbean Sea late Sunday night. The storm steadily strengthened on Monday as it moved northwestward and made landfall on the Yucatan Peninsula south of Cozumel and Cancun early this morning as a 60 mph tropical storm. As far as mid-range tropical storms go, this one actually looks pretty good, a rarity so far in this young hurricane season of 2017 in which most of the storms have been sloppy, short-lived glorified clusters of thunderstorms. The system will spend today tracking across the peninsula and should emerge into the Bay of Campeche early Wednesday morning, probably as a minimal tropical storm. The system will have roughly 36 hours over the warm waters of the Bay and the latest NHC forecast calls for Franklin to reach minimal hurricane strength by the time it makes its final landfall over the Mexican coast south of Texas on Thursday. The system will remain well south of US oil & natural gas infrastructure in the Gulf of Mexico throughout its lifetime and should not substantively threaten production of either commodity. It should likewise not significantly impact LNG exports from Sabine Pass as current tanker traffic enroute to the plant looks to be well north of the storm, passing through the Straights of Florida.

Looking at the longer term temperature pattern, expect temperatures to continue to slowly moderate over the rest of the week to near average levels on a population-weighted basis by the weekend or early next week. Temperatures could then hover near average for a few days--which in this market environment translates to above-average natural gas demand--before potentially warming back above average by the last week of August. The Figure to the right shows the NWS temperature outlook for the 8-14 day timeframe and you may notice that it contains much less dark blue and purple as it did at the end of last week. By the third and fourth weeks of August, highs across the Northeast, Southeast and Texas could warm to slightly above-average while the Heartland looks to remain cooler-than-normal, but less so compared to the first half of this week. Overall, while it certainly doesn't look like a late August heatwave is in the offing at this time, the temperature forecast heading into the second half of August does appear more conducive to natural gas demand compared to the past week. My storage model is projecting weekly storage injections for the weeks of August 18 and August 25 in the low and upper +40s, respectively, which will be a solid 15-20 BCF smaller than the 5-year average for each week. Click HERE for more on the long-term temperature forecast.