Natural gas (NYSEARCA:UNG) prices were up 9.27% this week.
Boy, oh boy, we were very off on this short-term call. The recent face ripping rally came on both a bearish storage report AND bearish fundamentals. Literally nothing bearish could hold down natural gas prices this week, and as we said in this NGD:
Looking at our current long-term model, we are preparing to raise our natural gas price projection. We think $3.50/MMBtu might prove to be too low, and will explain in a piece to premium subscribers this weekend titled, "Big Picture Outlook - Why We Are Very Bullish Natural Gas." In it, we will detail how US natural gas production will look under each natural gas price scenario along with analyzing the current pipeline takeaway capacity that will even allow the additional gas to come on stream. The structural tightening we've seen over the last year is very meaningful to our long-term outlook.
Weather did contribute to the tighter gas environment over the last several months, but it only explains about 40% of the difference, while the other 60% came from just demand outpacing supply growth. If we don't get an immediate supply response by middle of 2017, there is a very high probability that we could enter 2017-2018 heating season WELL UNDER the five-year average. All of our current long-term assumptions assume "normal weather conditions" and our models can be recalibrated for different weather scenarios.
This is why we said that bulls and bears have to balance the medium-term outlook with the short-term outlook. Looking at fundamentals, persistently warmer temperature will occur at the end of October and leaking into the beginning of November. We have subsequently raised our EOS estimate as a result, but the impact to our April 2017 storage has been minimal at best. Recent price action as we highlighted stems from traders experiencing fear of missing out (FOMO) and with the very bullish Winter backdrop, all price corrections will see traders piling back in.
As the old saying goes, "If it doesn't go down on bad news, it's a bull market."
We will be publishing the "Big Picture Outlook" piece this weekend to premium subscribers. In addition, we post weekly natural gas outlook reports, so if you are interested, please consider signing up here. Thank you for reading Weekly Natural Gas Recap.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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