Natural Gas: Get Ready For An Early Spring

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

We expect a -203 Bcf change in the storage report for the week ended March 8.

A storage report of -203 Bcf would be higher than last year's -93 Bcf and -97 Bcf for the five-year average.

Weather models are pointing to warmer than normal temperatures for the last week of March.

We have injections for 3/29 and 4/5 week at the moment due to the bearish HDDs.

We think there may be another retest of $2.85, which is where we want to go short natural gas. April currently is projected to be biased to the warm side.

Welcome to the early Spring edition of Natural Gas Daily!

Housekeeping item first.

We expect a -203 Bcf change in the storage report for the week ended March 8. A storage report of -203 Bcf would be higher than last year's -93 Bcf and -97 Bcf for the five-year average.

Get ready for an early spring

Following another cold blast to start March and a small one in the following week, natural gas market participants should get ready for an early arrival of spring-like conditions.

Source: StormVistaWxModels.com

GFS-ENS shows a much warmer than normal outlook 15 days out with most of the ensemble members projecting materially lower HDDs. In addition, readers can see the following heating degree day table to see the heating demand falling below the 30-year norm by the end of March.

Source: StormVistaWxModels.com

As you can see, the reduction in heating demand by the last week of March has pushed overall HDDs lower and making it the sixth coldest March since 2000:

But more importantly for traders is the outlook for April, which is currently biased to the warm side. This combined with HDD losses over the weekend saw April contracts briefly hit the $2.75 range before rebounding higher.

Our take is that there will likely be another retest of the $2.85 range, and if it does, market participants should get ready to short natural gas. The reason is that despite the low storage levels, if April weather comes in warmer than normal, then the market will feel the full force of the elevated lower 48 production, which is clocking in close to ~89 Bcf/d at the moment.

Source: HFI Research

Production is simply far too high right now given the demand outlook, and this would result in storage builds to be higher than normal. We already are seeing this with our forecast for storage builds for the week ending March 29 and April 5.

Going forward, we believe we are now at the start of the summer price band trading environment. So as prices get closer and closer to either side of the price band, we will be going long or short. We still see a range-bound market pricing environment for this year despite the low storage levels.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in DGAZ over the next 72 hours. 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.