Weekly Natural Gas Storage Report - Lower First Higher After
- The EIA reported a -29 Bcf change in storage but the implied flow was -20 Bcf.
- This was 8 Bcf higher than our estimate of -21 Bcf and 3 Bcf higher than the consensus average of -26 Bcf.
- Our view on natural gas is that it needs to move lower first before moving higher.
Welcome to the Weekly Natural Gas Storage Report Edition of Natural Gas Daily!
The EIA reported a -29 Bcf change in storage but the implied flow was -20 Bcf. This brought storage to 1.354 Tcf. This compares to the +2 Bcf change last year and -28 Bcf change for the five-year average.
Note in this report that EIA reclassified working gas stocks lower by 9 Bcf in the South Central Non-salt region. This pushed the storage draw from -20 Bcf to -29 Bcf, but the implied flow was -20 Bcf.
Going into this storage report, a Reuters survey of traders and analysts pegged the average at -26 Bcf with a range of -19 Bcf to -35 Bcf. We expected -21 Bcf and were 5 Bcf below the consensus. We were off by 8 Bcf on this storage report and 1 Bcf on an implied basis.
In our weekly natural gas recap, we wrote that bearish pressure was building. As a result, we initiated a UGAZ short that was alerted to HFI Research subscribers yesterday. You can see the timestamp of the alert here.
Our view is that natural gas prices will move lower in the short term before moving higher. The reason being that the recent bearish fundamental revisions to storage came despite a rather bullish weather outlook. Once the weather outlook moderates, which appears to be the case for the middle of April, the true balance will reveal itself. Our data shows that daily balances are indicating a surplus at the moment, and price itself will have to move lower to incentivize more demand.
However, as prices move lower, the resulting decrease in natural gas will push higher power burn demand over the summer, which will tighten storage and increase prices down the road. But first, prices will have to move lower before moving higher.
For us from a trading perspective, we intend to hold our short on UGAZ for the time being. HFI Research subscribers will receive a real-time alert as to when we cover our position and potentially flip bullish.
The market, for the time being, will continue to be fixated on this.
If you would like to start receiving live updates on how we are trading our positions, what the traders are saying, or how the fundamental set-up is shifting, we think you should give our premium service a try. See here for more info.
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Analyst’s Disclosure: I am/we are short UGAZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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