Natural Gas Dips After EIA Reports Neutral +74 BCF Storage Injection As The Commodity Remains Slightly Overvalued; Preliminary +56 BCF Storage Injection Projected For Week Of April 21-27 Ending Today; Broad & Prolonged Period Of March-Like Chill Next Week As Pair Of Potent Storms Draw Cold Air Southward
6:00 AM EDT, Friday, April 28, 2017
In its weekly Natural Gas Storage Report for the week of April 15-21, the EIA announced on Thursday that inventories climbed by +74 BCF.
While the week's storage injection was bearish versus the 5-year average, with temperature removed as a variable, natural gas supply/demand balance remains tight, although the week did see some loosening. I calculate that the market was 1.6 BC/day loose versus the 5-year average, down from both 2.7 BCF/day tight the week before and the 1-month average of 2.8 BCF/day tight. Based on this supply/demand balance and near-term temperature projections, I am projecting a very early end-of-cooling-season peak storage level of 3785 BCF on the week ending November 10, 2017. This would be 88 BCF less than the 5-year average and 254 BCF less than last year's record peak. Additionally, it would be the second most bullish peak inventory level in the past 5 years behind only 2014's 3611 BCF. However, with season-ending inventory levels trending higher in the 2000s and particularly 2010's, it would still be the 8th largest storage level in the full 23 year period of record, which have ranged from last year's 4047 BCF to just 2748 BCF. See more on my Long Term Natural Gas Inventories Page HERE.
Overall, the week's report was within my target range and is thus best characterized as neutral versus expectations. Natural gas investors seemed to regard it as such. The commodity was down around 1% pre-report, jumped to flat on the day in the minutes following the report, before giving these gains up during the afternoon to finish down 3 cents or 1.0% to $3.24/MMBTU in the June 2017 contract's first day as the front month contract. The ETF UNG outperformed on the day, falling just 0.66%. Despite the pullback, thanks to the loosening of the market this week, natural gas remains 12% overvalued versus its Fair Price based on current inventories alone and a slight 4.3% overvalued based on the long-term 8-Month Average Fair Price. This slight overvaluation, but a generally cooler-than-average temperature forecast over the next 2 weeks (more on this below), favors sideways, rangebound trading over the next few weeks. I continue to hold a short position in the commodity via short UGAZ. I plan to continue holding with a price target of $3.00-$3.10/MMBTU for the June 2017 contract and will sleep easy at night.