Weekly Natural Gas Recap - Peak Heat Behind Us

| About: The United (UNG)

Summary

Natural gas prices ended the week down.

EIA reported a rare draw in storage.

With peak heat behind us, natural gas prices could level off.

Despite one of the rarest storage reports to date, natural gas prices were down for the week.

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In our weekly natural gas storage report, we said the following:

"As we said many times before, injection figures need to average in the mid-20s for August if natural gas prices want to see $3+. If that doesn't happen, natural gas bulls will have to wait until winter for $3+ gas. Given that natural gas prices are already sitting around $2.83/MMBtu, it's better to take a wait-and-see approach for short-term traders."

July was one hot month, and reports over the next several weeks will probably highlight how this was one of the hottest Julys on record. Power burn demand for this EIA weekly storage report averaged over 40 Bcf/d! We won't see that kind of power burn demand for the rest of this summer.

With peak summer heat behind us, natural gas storage remains in "surplus territory" and that's not particularly bullish for prices especially if August temperature model runs are coming in modest.

We also reported this week that US production remains resilient. US natural gas producers are currently using up drilled but uncompleted wells (DUCs) with expectations to bring on more production at year end when natural gas (NYSEARCA:UNG) prices recover.

Despite potentially lower prices near-term, end of storage forecasts are averaging just slightly over 4 Tcf. We continue to expect EOS to end below 4 Tcf. If EOS finishes around 3.9 Tcf, it would be very positive for natural gas prices going into winter.

Similar to the oil markets, market participants have to balance the near-term bearishness with the long-term outlook. We remain very bullish on natural gas prices in the long-run, and believe that prices need to average $3.5/MMBtu in order for the market to balance.

Let us know what you think the equilibrium price should be in the comment section below!

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