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Natural Gas Holds Onto Gains Despite Larger-Than-Expected EIA-Reported Storage Injection As Heatwave To Drive Strong Cooling Demand Across The Heartland This Weekend; Inventories To Finally Top 2,000 BCF On Saturday, The Latest Date Since 2014; Loosening Natural Gas Supply/Demand Increasingly Apparent Despite Ongoing Heat

6:00 AM EDT, Friday, June 15, 2018
On Thursday morning, the EIA announced that natural gas inventories rose by +96 BCF during the week of June 2-8. The build was 7 BCF larger than my +89 BCF projection and 5 BCF bearish versus the 5-year average +91 BCF injection. With the build, inventories rose to 1913 BCF while the storage deficit versus the 5-year average slid to -507 BCF or -21%. The year-over-year deficit decreased to -785 BCF or -29%. All 5 storage regions remain at sizable deficits versus the 5-year average, led by the South Central and Midwest at -161 BCF each, with the former driven by year-over-year gains in LNG exports and the latter by bitterly cold winter and spring temperatures. Click HERE for more on current natural gas inventories.

Daily Natural Gas Domestic Production

Figure 1: Click here for more information on on natural gas supply.

Following the release of the storage data in the morning, the EIA released its weekly supply and demand numbers late in the afternoon. Most importantly, natural gas production remained below 80 BCF/day yet again at 79.6 BCF/day for June 2-8 and looks to remain so this week this week as well, holding at 79.8 BCF/day through Wednesday, June 13. Since first topping 80 BCF/day in early April, domestic production has plateaued at just under this level, as shown in the Figure to the right, defying analyst projections that took production to as high as 83 BCF/day by the end of the summer. Production is still up by 7.1 BCF/day year-over-year, but this took has narrowed from a peak of over 8 BCF/day as production this time last year was beginning to ramp up. With Canadian imports falling over the past two weeks, total supply stands at 85.3 BCF/day through June 8, a year-over-year gain of 7 BCF/day, down from a peak of 9 BCF/day last month. On the demand side, exports to Mexico remain around 0.2 BCF/day higher year-over-year and LNG exports, while operating well below capacity over the past month, were still up by 0.6 BCF/day from 2017. Powerburn demand remained strong last week, averaging 29.5 BCF/day, up 2.9 BCF/day from 2017 due to a combination of warmer-than-average temperatures driving cooling demand and fuel switching on account of discounted natural gas prices. Gains in these elements of demand have helped to blunt the rise in supply and maintain a reasonably tight supply/demand balance, but much of this tightness is being driven by above-average temperatures. Looking at only purely temperature-independent variables--production, LNG imports and exports, exports to Mexico, and Canadian imports--the market remains 6.3 BCF/day loose year-over-year. If and when temperatures moderate back towards seasonal levels, expect consistently larger-than-normal storage injections to finally begin to eat away at the storage deficit. Click HERE for more on the latest EIA-reported natural gas supply and demand data.

Following the bearish and larger-than-expected storage injection, natural gas prices immediately fell by around 1% to as low as $2.93/MMBTU, but then staged a rally for the remainder of the day to finish in the black, up less than 0.1% at $2.97/MMBTU. The commodity continues to find support with a prolonged period of impressive heat across the Midwest this weekend that will keep June 2018 on pace to be the hottest June since 2000. Despite the heat, I expect natural gas will find it challenging to maintain gains above $3.00/MMBTU as any cooling in the models will likely result in quick selling pressure due to a considerably looser supply/demand balance year-over-year. However, with the storage deficit versus the 5-year average remaining above -500 BCF much longer than anyone expected, the commodity will likely maintain a price floor above $2.85/MMBTU resulting in a period of range-bound trading. WTI crude oil extended Wednesday's rally, rising by 25 cents or 0.4% to settle at $66.89/barrel, the commodity's highest settlement since May 31.The rally was supported by Wednesday's surprisingly bullish EIA Status Report in which inventories for crude oil, distillates, and gasoline all fell during the week of June 2-8 despite a new record high in production. Brent oil, on the other hand, fell by 80 cents to $75.94/barrel as the Brent-WTI spread fell back under $10/barrel for the first time in over a week as investors worry that the upcoming OPEC meeting on June 22 could result in a rise in international supply. My Oil & Natural Gas Portfolio closed to within 0.2% of all-time highs, rising 0.3% on Thursday for the third daily gain in four days this week. The portfolio is up +14.6% year-to-date through the first 114 trading days of 2018 or +32.3% annualized. As a reminder, 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.

Today's Forecast Departure From Average High Temperatures

Figure 2: Click here for more information on on the near-term forecast.

Natural gas demand will hold steady at above-average levels today as warmer-than-average temperatures build across the Heartland. Highs today will warm into the mid-to-upper 90s as far north as central Nebraska with some spots in Texas and Oklahoma topping 100F, all 5F-15F warmer than normal. The heat will extend as far north as Minneapolis and Chicago where readings could top 90F, each around 12F warmer-than-normal. The heat across the center of the nation will be offset some by seasonally cool readings across both coasts. Along the densely-populated I-95 corridor, highs will be in the low 80s from Washington, DC through Philadelphia, mid-70s in New York City, and near 70F in Boston, generally near-average to around 5F below-average. Overall, the forecast mean population-weighted nationwide temperature today will fall by around 0.6F from Thursday to 75.6F, still 2.2F warmer-than-normal. Total Degree Days today will be 11.4 TDDs, 0.9 TDDs greater than normal and the 10th most for June 15 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 +11 BCF/day natural gas storage injection for June 15, around 0.5 BCF/day larger than Thursday, but still nearly 1 BCF/day bullish versus the 5-year average +12 BCF/day build. Click HERE for more on today's projected daily injection and realtime natural gas inventories.

Projected Natural Gas Storage Injection For June 9-15: 5-Year Historical Comparison

Figure 3: Click here for more information on natural gas inventories.

For the natural gas storage week of June 9-15 that ends today, I am projecting a preliminary +82 BCF storage injection. Such an injection would be very close to the 5-year average--just 1 BCF/day bullish. As the Figure to the right shows, the injection would be the tied with 2015 for the third smallest build for the June 9-15 period in the last 5 years, behind a +63 BCF injection in 2017 and +64 BCF injection in 2014. Despite the slightly bullish build, it is worth noting that given the generally above-average temperatures experienced throughout the week, such cooling demand would have resulted in an estimated low-+70s BCF injection in last year's market, highlighting the loosening of supply/demand balance this summer with only hot weather keeping inventories on pace with the 5-year average. Should a +82 BCF injection verify, natural gas inventories would rise to 1995 BCF while the storage deficit versus the 5-year average would inch higher to -508 BCF or -20% while the year-over-year deficit would slide by 18 BCF to -766 BCF. The EIA will release its official numbers for the June 9-15 period next Thursday, June 21, at 10:30 AM EDT. This remains a preliminary projection and will be revised further over the next 3-5 days as finalized temperature and pipeline data is integrated into my model. Click HERE for more on this week's projected injection.

Projected Daily Natural Gas Storage Injrections For June 16-22

Figure 4: Click here for more information on Week 2 natural as storage

Early Saturday morning, I expect natural gas inventories will finally top 2000 BCF, which is rather impressive since storage levels in 2017 did not even fall below 2000 BCF during the nadir of the withdrawal season. It would be the latest that natural gas inventories eclipsed 2000 BCF since 2014 when stocks didn't top that mark until July 2. Looking ahead to next week, the heat will build across the Plains over the weekend. Heat advisories are up for much of Iowa and Nebraska with an Excessive Heat Watch up for Chicago where some areas could approach 100F on Sunday. Additionally, temperatures across the major population centers of the Eastern Seaboard will rise into the 90s by Sunday into early next week. As a result, I am projecting that daily storage injections could fall into the single digits for at least one day early next week before cooler temperatures arrive across the Heartland by the middle of the week, as shown in the Figure to the right which shows projected daily natural gas storage injections. Overall, for the week of June 16-22, I am projecting a preliminary +71 BCF weekly natural gas storage injection, near the 5-year average +72 BCF and 23 BCF smaller than last year's bullish +48 BCF build. Once again, with the type of heat expected next week, this would have equated to a mid-+50's BCF injection in last summer's market. Should a +71 BCF build verify, natural gas inventories would rise to 2066 BCF while the storage deficit versus the 5-year average would reach -509 BCF. Click HERE for more on next week's storage projection.

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