Rice_Rocket_Ocho_Cinco's  Instablog

Commentary
The EIA reported a +94 build which expands the y/y surplus from +622 to +631, and +482 to the 5yr avg. This number was in line against the street estimate of +95. This week's report increases the 4 week rolling y/y s/d balance from +3.55 to +3.57. Days of supply y/y decreases from +15.37 to +14.07. Versus last  week this week's demand was higher by 2.85 bcf/d which came from core weather increases in residential/ commercial & electric. Supply stays constant at 55.5. Net is +13.4 bcf/d or +94 for the week. Using pop' weighted degree days the implied s/d this week versus last was stronger by 3 bcd/d. As a result, next week's estimate goes down from +95 to +86 and if accurate will again increase the 4 week y/y s/d  from +3.57 to +3.25. Days of supply will also decrease  from 14.07 to 13.52. Short of the story is this week showed a big improvement in s-d balance due to the prod. region matching its lowest build this injection season. This could be a result of storage operators in the prod. region slowing down injections due to capacity reaching a healthy 85% after only 3 months into the injection season.

Disclosure: No positions

The CAPP Coal to Nymex NatGas Btu futures spread indicates that coal to gas substitution will end this Nov’09. That is roughly 2.1 bcf/d of NatGas demand that will be lost which will only add more to the already bearish imbalance of +3 year over year supply-demand (as of WE 6/12). This analysis implies downside risk to the current forward curve of NatGas.

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July settled at 3.844, +0.083 on the day after trading between a range of 3.743 and 3.95. Volume was very healthy at 72,060 July ice contracts. The EIA reported a +94 build which expands the y/y surplus from +622 to +631, and +482 to the 5yr avg. This number was in line against the street estimate of +95. This week's report increases the 4 week rolling y/y s/d balance from +3.55 to +3.57. Days of supply y/y decreases from +15.37 to +14.07. As expected July penultimate was collared between 3.75 and 4.00. Technically, the daily chart remains above the 18 & 40dma and sstochs continue to build. Macd lead line is hooking back up and has crossed the signal line of which both are now in the positive zone. The rsi is lagging the others in neutral territory at 50. Resistance unfolds at 4.053 (coal equiv. in Aug, daily pvt., pennant high) & support resides at the 3.846 daily pivot. As long as the market continues to see upticks and higher settles the potential for the 40/100 dma 'golden cross' improves (.025 away).  What does this mean?...Looking back on the daily continuation chart this potential golden cross is similar to the cross of 10/26/07. After the '07 cross the prompt ng contract gained 20% before fundamentals pulled it back within a couple of  weeks. Why should prices pull back on such a bullish technical achievement?.....Being in the mildest weather demand month of the year  with record inventory levels it is hard to refute why prices should not make new lows. In addition, prices must go lower to uninterrupt coal to gas substitution, disincentivize producers from turning rigs back on, and keep the LNG from flooding the U.S. markets. As convoluted as this sounds the cure to low prices is lower prices.
 

Disclosure: No positions