April 9, 2019

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Natural Gas Edges Higher On Cooler Outlook While WTI Oil Rises To New High On Libyan Conflict; LNG Export Demand Continues To Suffer As Sabine Pass Maintenance Drags On; Gas Demand To Rise Today, But Year-Over-Year Storage Deficit Still Projected To Fall Under -100 BCF; Oil & Natural Gas Portfolio Rises To New 2019 High

6:00 AM EDT, Tuesday, April 9, 2019
Natural gas started the week off on a strong note Monday, rising 1.7% to settle at $2.71/MMBTU. The rally was driven by a continuation of the mid-April cooling trend amongst the near-term computer models, replacing what bearish investors had anticipated would be consistently warmer-than-normal temperatures with a prolonged period of chilly weather, especially across the Heartland. Meanwhile, crude oil soared to new highs as fighting near Libyan oil fields raised fears of an additional tightening in global supply. That catalyst jolted WTI higher by $1.32 or 2.1% to $64.40/MMbbl, the sixth straight daily gain and just below my $65/barrel price target. My Oil & Natural Gas Portfolio took advantage of the moves in both commodities and rose +0.8% on Monday to push 2019 year-to-date gains to +12.1% or +44.9%. It was a new 2019 high for the Portfolio. I made a pair of trades on Monday, nearly simultaneously. With the commodity topping my rather pessimistic $2.70/MMBTU near-term price target, I covered a 4% piece of my DGAZ short which provided long exposure and transitioned these funds--plus an additional 4% from my oversized cash position--and shorted an 8% stake in UGAZ. This flipped my Portfolio from net long to net short natural gas. As it stands presently, I am net short a small 4.5% position with a 12% short UGAZ holding partially offset by a 7.5% DGAZ holding. Should natural gas top $2.75/MMBTU, I will likely add to this position. My downside price target is $2.60/MMBTU, or perhaps lower. Click HERE for more on my current oil and natural gas holdings.

After a 2019-high +19 BCF/day daily natural gas storage injection on Monday, demand will finally pick up slightly today as colder temperatures begin to overspread the northern Plains ahead of a major winter storm. Highs in Minneapolis--under a Winter Storm Watch for 12-16 inches of snow beginning tomorrow--will only reach the low-50s today, more than 15F colder than Monday but still around 5F warmer-than-normal. Further north across the sparsely-populated north, highs will only be in the 30s and 40s across parts of northern Minnesota and North Dakota. Elsewhere, however, Spring will continue to dominate. Highs will push 70F in Chicago, 75F in St Louis and 90F in San Antonio, all 10F-15F warmer-than-normal. And for a second straight day Washington, DC and Philadelphia, PA could approach 80F--20F warmer than normal--while New York City cools into the low 60s, still around 5F warmer-than-normal, as backdoor cold front edges southward. Overall, thanks to the cooling trend across the northern Plains and New England, today's forecast mean population-weighted nationwide temperature will cool 1.4F from Monday to 64.6F, still an exceptionally balmy 8.9F warmer-than-normal. Total Degree Days (TDDs) will rise to 6.9 TDDs, 4.2 TDDs fewer than normal and, for a second straight day, the single fewest for April 9 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 +16 BCF daily natural gas storage injection. On the one hand, this is nearly 4 BCF smaller than Monday's build, but on the other it is still an ugly 13 BCF bearish versus the 5-year average. By tonight, Realtime natural gas inventories will have risen to near 1227 BCF while the storage deficit versus the 5-year average will have contracted down to -425 BCF. Additionally, the year-over-year deficit will fall by a steep 21 BCF, taking it under -100 BCF for the first time since February 15, a time when natural gas was trading at $2.63/MMBTU. Click HERE for more on today's projected injection and Realtime natural gas inventories.

While the warm weather certainly isn't helping matters, today's bearish natural gas storage injection is also being driven by a prolonged period of greatly weakened LNG exports. Based on early-cycle pipeline demand, LNG feedgas demand for will fall another 0.25 MMbbtu/day to $3.00/MMBTU, just 55% of capacity and flat year-over-year. While Cove Point and Corpus Christi are both operating near their respective capacity, Sabine Pass continues to undergo maintenance and, at just 1.44 BCF/day, is nearly half year-ago levels and just 35% of capacity. As a result of these reductions, I am projecting that total LNG feedgas demand this week will be just 21.9 BCF, down 3.6 BCF from last week and down nearly 15 BCF from the mid-March highs. With LNG export demand acting as one of the major foils to rccord production levels, the recent cutdown in feedgas demand has to be a disappointment. Over the past 3 weeks, a total of 28 BCF has been erased from natural gas demand due to this maintenance. This has contributed to the loosening in temperature-adjusted supply demand imbalance seen last week a trend which will continue until Sabine Pass again ramps up operations, which could be as early as the next 10 days, but it is still too early for sure. Click HERE for more on LNG export demand.