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Weekly Natural Gas Recap - Mother Nature Comes To The Rescue

Apr. 08, 2018 4:08 AM ETUNG, UGAZF, DGAZ, BOIL, KOLD, UNL, DCNG27 Comments


  • Natural gas finished the week lower by 1.17%.
  • Weather models flipped 180 on Friday to show a colder than normal second half of April; this reduces the bearish fundamental pressure on the market.
  • Both the bull and bear case make compelling points, and because the facts are mixed, mother nature will once again dominate the trading direction over the summer.
  • The latest monthly outlook from CFS shows neutral to bullish weather from May to September.

Welcome to the weekly natural gas recap edition of Natural Gas Daily!

Natural gas finished the week lower by 1.17%.

Last week in our weekly natural gas recap, we said that bearish pressure was building. After falling to a low of $2.65/MMBtu, mother nature swooped in Friday morning's weather model update to show a 180 flip from the bearish weather in the second half of April to bullish.

We originally initiated a short UGAZ position on Wednesday, but closed out the trade on Friday for a gain of 4.47% after we noticed the sharp HDD revision higher.

For natural gas bulls, 2018 has been somewhat of a mixed year. Fundamentals have deteriorated via higher than expected Lower 48 production growth thanks to new takeaway capacity in Northeast and higher Permian associated gas production, but the weather trends have also been very supportive suppressing the bearish fundamentals.

As we wrote in our Friday NGD, if the second half of April remains colder than normal, then natural gas storage will exit at a deficit of more than 800 Bcf to last year. This will push higher the production needed during the injection season to ~81.5 Bcf/d, and if the weather continues to trend bullish, then the figure increases to ~83.5 to ~84 Bcf/d.

In our preliminary forecast for storage at the end of injection season, we have an estimate of ~3.65 Tcf, and this could be lower if the weather continues to trend bullish.

The set-up in 2018 is not going to be as straightforward as we were in 2017. In 2017, we had storage coming in higher than the 5-year average, but supplies were materially lower as a lack of takeaway capacity and low gas prices the previous year suppressed production growth. But this year, we sort of have the opposite set-up of 2017. Storage is significantly

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