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Oil & Natural Gas Rebound Over 4% Last Week As Volatile Trading Continues; Bullish +58 BCF Natural Gas Storage Injection Projected For October 7-13 As LNG Exports Rise To Record And Production Falls Due To Shut-Ins; Gas Demand To Fall This Week As Heartland Temperatures Warm


6:00 AM EDT, Monday, October 16, 2017
Natural gas continued its late-week rally on Friday, rising a further 1 cent or 0.4% to close at $3.00/MMBTU, its highest close since September 29, to cap off a weekly gain of 4.8%. The commodity got a shot in the arm on Thursday after an otherwise ho-hum +87 BCF EIA-reported weekly storage injection, perhaps suggesting a relief rally more than anything else, although record LNG exports and an anticipated bullish storage injection in next week's EIA storage report likely also contributed. Even after the rally, natural gas remains undervalued by 11.5% versus my calculated Fair Price based on current inventories alone, although this undervaluation falls to under 3% based on December projections and futures prices. Crude oil had a strong week as well, rising 85 cents or 1.7% on Friday to settle at $51.45/barrel, up 4.4% on the week. Like natural gas, it was the highest close for the commodity since September 29. Brent crude rose 2.8% on the week to $57.17/barrel so while the Brent-WTI spread narrowed, it still remains at a very robust $5.72/barrel, maintaining upward pressure on domestic oil exports. My Oil & Natural Gas Portfolio rebounded sharply on the week, rising 4.3% to close within 0.4% of a new 2017 high, up +20.6% since May 1. I made 2 trades on the week as I continued to make subtle changes to my two largest positions ahead of a potential much bigger move this week. For subscribers, I have published a new Monday Investing Commentary HERE discussing my current holdings, oil & natural gas outlook, and trading strategy for the upcoming week. To learn more and subscribe, please click HERE. Thank you to my old and new subscribers. Your support continues to provide the drive to maintain and upgrade the site.




Projected Natural Gas Storage Injection For October 7-13: 5-Year Historical Comparison

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

The EIA will release its weekly Natural Gas Storage Report October 7-13 this Thursday at 10:30 AM EDT. I am projecting a very bullish +58 BCF natural gas storage injection, 20 BCF bullish versus the 5-year average and 19 BCF bullish versus last year's build. It would also be an impressive 29 BCF smaller than the previous week's +87 BCF build. And as the Figure to the right shows, a +58 BCF build would be the second largest weekly injection for the October 7-13 period in the last 5 years, behind only 2012's +52 BCF injection.


The bullish build was driven primarily by early-week demand associated with rising heating demand across the Rockies due to an early-season winter storm and persistently hot temperatures across the Deep South boosting late-season powerburn, although there was also a significant temperature-independent tightening of supply/demand balance due to curtailed Gulf of Mexico production and record LNG exports from Sabine Pass. Due to the southern heat, powerburn averaged a strong 29.3 BCF/day, up 3 BCF/day week-over-week and more than 2 BCF/day compared to the same week last year.


Natural Gas Gulf Of Mexico Production Shut-Ins October 7-13

Figure 2: Click here for more information on on LNG exports.

Meanwhile, domestic production was curtailed by nearly 10 BCF due to production shut-ins associated with Hurricane Nate. Nate made landfall as a fast-moving Category 1 storm late Saturday, October 7 after prompting shut-ins of nearly 80% of Gulf natural gas production. Despite the storm's passage and minimal damage to oil & natural gas infrastructure, production was slow to recover over the course of the week. The Figure to the right plots daily production shut-ins for October 7-13, as reported by the BSEE. After starting the week with over 2.5 BCF/day shut-in, production losses had fallen to under 0.25 BCF/day by Friday, and fell to near 0 BCF/day over the weekend. All-told, 9.8 BCF of supply was lost over the week.


And finally, LNG feedgas demand was not disrupted by Nate and in fact climbed to near its current capacity of 3.1 BCF/day, tallying a new weekly record high of 20.4 BCF, up 5 BCF week-over-week. Click HERE for more on LNG feedgas demand.


Should a +58 BCF injection verify, natural gas inventories would rise to 3653 BCF while the storage surplus versus the 5-year average would fall to -28 BCF. This projection remains preliminary and may be revised over the next 72 hours as finalized pipeline and temperature data is integrated into my model. Click HERE for full details regarding this week's projection.



Today's Forecast Nationwide Departure From Average Nationwide Temperatures

Figure 3: Click here for more information on on the near-term forecast.

Over the weekend, natural gas demand held comfortably above-average thanks to record LNG feedgas and warm weather across the Southeast and Mid-Atlantic that boosted powerburn. Highs on Sunday were in the low-to-mid 80s from Atlanta to Raleigh to Richmond, while Washington, DC and Philadelphia approached 80F, all around 15F above-average. As a result, projected daily injections were +9 BCF and +8 BCF on Saturday and Sunday, respectively, both slightly bullish versus the 5-year average +11 BCF/day. While nationwide temperatures will cool considerably today, natural gas demand looks to hold about steady as total degree days remain flat. As a potent cold front clears the Eastern Seaboard today, high temperatures will fall 10F-15F day-over-day regionwide today with highs only in the upper 60s from Richmond to Boston, 5F cooler than average south to 5F warmer than normal north. Further west, low temperatures across much of the Midwest will drop into the upper 30s to lower 40s this morning across most of the Midwest, 5F-10F cooler than normal, which could prompt some low-grade heating demand. Overall, the forecast mean population-weighted nationwide temperature will plummet 5.6F from Sunday to 63.2F today, still 2.8F warmer-than-normal. Total Degree Days will fall only slightly to 7.6 TDDs today, the 17th fewest in the last 37 years dating back to 1981. Click HERE for more on today's temperature and degree day outlook. In other weather news, post-tropical cyclone Ophelia will pummel Ireland and Great Britain with heavy rain and destructive wind today. On Saturday, the storm strengthened to a Category 3 "Major" Hurricane the furthest northeast a storm of such intensity had ever been observed in the Atlantic Basin, just another oddity in the remarkable 2017 hurricane season. As the system moved over much cooler ocean temperatures and was impacted by increasing wind sheer on Sunday, the storm quickly became non-tropical, even as its wind field expanded considerably. While the British Isles are used to powerful storms this time of year, Ophelia could be a once-in-a-decade storm bringing destructive winds gusting to over hurricane force, punishing waves, and heavy rain with isolated flash flooding. The storm should have minimal, if any, impact on US oil & natural gas prices.


Anyways, based on today's temperature outlook and early-cycle pipeline demand, I am projecting a +8 BCF/day daily natural gas storage injection for today, unchanged from yesterday and 3 BCF bullish versus the 5-year average. Click HERE for more on today's projected daily injection and intraday natural gas inventories.


For the remainder of the week, natural gas demand will hold steady with a +7-8 BCF/day daily storage injection on Tuesday before falling abruptly on Wednesday as unseasonably warm temperatures shift into the northern Plains and Midwest with highs in the 60s and low 70s as far north as the Canadian border from Montana to Vermont, 15F-25F warmer than average, quashing any heating demand. As a result, daily storage injections will rise above-average to as high as +14 BCF/day by Friday. For the week of October 14-20, I am projecting a modestly bullish +69 BCF weekly storage injection, 6 BCF bullish versus the 5-year average. Should it verify, the storage deficit versus the 5-year average would rise to -33 BCF. The EIA will release its official weekly injection numbers for this week on Thursday, October 26. Click HERE for more on this week's storage injection.



Daily LNG Feedgas Demand To Sabine Pass

Figure 4: Click here for more information on on LNG exports.

As I've mentioned multiple times earlier in this article, LNG feedgas to Sabine Pass rose to and has maintained at all-time record highs. Last week, total exports reached a new record high of 20.4 BCF after daily demand exceeded 3.1 BCF/day for the first time. At these levels, all 4 Trains are likely operating a near peak capacity. After dropping to 2.8 BCF/day on Saturday, LNG feedgas demand rebounded to 3.1 BCF/day for Sunday before falling to 2.9 BCF/day on Monday. Daily LNG feedgas is shown in the Figure to the right. At its current pace, total demand will reach a new record of 20.7 BCF for October 14-20, maintaining a tight temperature-independent supply/demand balance and helping to counter recent growth in supply out of the Marcellus Shale on the Rover Pipeline. With Dominion Energy's Cove Point LNG export plant expected to come online within the next month, expect LNG exports to approach 4.0 BCF/day before the end of 2017. Click HERE for more on LNG exports.


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