Natural Gas Storage
Storage Injections Above Predictions, but...
The first week of April saw EIA report a natural gas injection level of 12 Bcf into storage, which was slightly more than predicted. Current storage levels are 54% above the 5-year average and 68% above last year’s level.
The Bad News: Storage levels increased to record levels yet gas prices rallied up to the $2.00 mark.
What happened? A couple of opinions have emerged.
- Investors have been speculating that producers will be making massive supply cuts soon due to the glut of low-priced gas in storage. The number of gas rigs is at its lowest level since the 1980’s.
- Investors are betting that the natural gas market has hit the bottom and are betting on a market rebound.
- Near-term colder temperatures are threatening to pull gas out of storage and weaken the surplus heading into this summer.
- Exports of LNG to Mexico are growing.
- Some weather services are hinting towards a very active and destructive 2016 hurricane season.
Whatever the correct answer is, the market has made a shift. Will the trend continue? Will you decide to lock-in fixed rates now or roll the dice?
Weather Forecast: Temperatures Are Warming Up
April weather temperatures across the western and Midwest states are predicted to be warmer than average, per the National Oceanic and Atmospheric Administration. Only New York and New England are expected to experience below normal temperatures. In the longer-term (90 day forecast), everywhere except the south-central states will see above normal temperatures with only parts of Texas seeing temperatures below normal.
It will be interesting to see if electric demand (and prices) will begin an early rise with these warmer than expected temperatures. If natural gas generators are ramped up to support an increase in electric demand, we could see natural gas prices rally.
Natural Gas Prices Jump to over $2.00/MMBTU
May natural gas contracts have jumped over the $2.00 threshold; closing last week at $2.03 / MMBTU. The $2.00 boundary is a significant milestone to watch and see if the market can maintain at that level.
On February 29th, we saw prices at a low of $1.74. Since then, prices have rallied 17%. Producing natural gas rigs are down 60% since same week last year.
With the end of the traditional heating season, we’ve experienced warmer than normal temperatures. As a result, storage levels soared to historic highs. However, the beginning of April threw us a twist as prices rallied despite continued good news on the storage front. The next few weeks will be interesting to watch and possibly costly to experience.
Natural Gas Prices have Spiked
Winter has ended with a strong storage stockpile heading into the summer. But, the markets have rallied despite the strong storage numbers. Is this a short-term market correction or a trend that will gain momentum?
We should have some concern over the financial health of many producers as they may begin to shut down rigs if prices remain low. As we predicted last month, if the balance between supply and demand sees a significant supply shift, we could begin to experience prices moving back up.