Weekly Natural Gas Storage Report: Weather Outlook Supports A Bullish Position

|
Includes: BOIL, DGAZ, KOLD, UGAZ, UNG, UNL
by: HFIR Energy
Summary

EIA reported a storage draw of 163 Bcf for the week ending Jan. 18. This compares to the -160 Bcf we projected and consensus average of -154 Bcf.

For the week ending Jan. 25, we have a storage draw of -195 Bcf. This would be compared to the five-year average draw of -160 Bcf and last year's -99.

Our EOS forecast is now 1.23 Tcf.

We are long UGAZ again as we believe the current natural gas price coupled with the weather outlook supports a bullish position.

We believe March contracts have a chance to hit $3.50/MMBtu if the weather outlook is colder than normal for the rest of February. But the odds favor a move to $3.30/MMBtu.

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

EIA reported a storage draw of 163 Bcf for the week ending Jan 18. This compares to the -160 Bcf we projected and consensus average of -154 Bcf. The -163 Bcf was about the same as the five-year average of -164 Bcf but much lower than last year's -288 Bcf.

Source: EIA

Next Week's Estimate

For the week ending Jan. 25th, we have a storage draw of -195 Bcf. This would be compared to the five-year average draw of -160 Bcf and last year's -99 Bcf.

Our EOS forecast is now 1.23 Tcf.

Latest weather outlook supports a bullish position

On Tuesday, we updated to readers that we exited our long positions last week Friday due to a bearish 15-day outlook. The weather models did turn warmer than normal for the week of Feb. 4 to 11, but the latest ECMWF-EPS long-range model suggests that the weather outlook from Feb. 11 to March 11 will be bullish.

Source: StormVistaWxModels.com

As you can see from the week 3 cluster above, the ensemble members are forecasting colder than normal temperatures to return with the concentration of the cold risk in the East Coast. This is bullish for heating demand and should help push natural gas prices higher.

But at the moment, there's a weather model disagreement again. GFS-ENS is forecasting a much more bearish 15-day outlook than ECMWF-EPS. The 15-day outlook from the GFS-ENS doesn't suggest a return to colder than normal temperature, so we will have to watch the ECMWF-EPS closely for any changes.

In our view, if the weather outlook plays out like the ECMWF-EPS long range suggests, we think March contracts still have a chance to hit $3.50/MMBtu with the odds of hitting $3.30/MMBtu again as the much higher outcome. We took on a new long position toward the close yesterday.

At the moment, we are long UGAZ. We are looking for a target close to ~$59 to $60 to sell. We will be updating our trades live to subscribers with public articles showing a delay in positioning.

We think given the risk/reward at current prices and the latest weather outlook, the set-up favors a bullish position.

Disclosure: I am/we are long 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.