Weekly Natural Gas Storage Report - Market Ignoring The Colder April

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

EIA reported a storage build of 23 Bcf for the week ending March 29.

This compares to the +18 Bcf we projected and consensus average of +10 Bcf.

For the week ending April 5, we have a storage build of 33 Bcf. November EOS is forecasted to be 3.55 Tcf.

We are long UGAZ as we believe the market is discounting the bullish weather outlook for April.

Lower 48 production has also stalled around ~89 Bcf/d.

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

EIA reported a storage build of 23 Bcf for the week ending March 29. This compares to the +18 Bcf we projected and consensus average of +10 Bcf. The +23 Bcf was much higher than the five-year average of -28 Bcf and last year's -29 Bcf.

Source: EIA

Next Week's Estimate

For the week ending April 5, we have a storage build of 33 Bcf. November EOS is forecasted to be 3.55 Tcf.

Trading Position

We were stopped out of our UGAZ position yesterday following the bearish EIA storage report. But we re-established our long position today as the weather outlook remains bullish and we believe natural gas prices are at the bottom of the band:

Market Ignoring the Bullish Weather

The market is ignoring the bullish weather in the coming days. This is probably related to the fact that storage builds this month will still be sizable despite the higher HDDs projected. By our calculation, natural gas storage build till the end of April will be 37 Bcf higher than the 5-year average and 224 Bcf higher than last year.

But even considering this variable, we believe prices are too cheap at the moment given the outlook.

Both ECMWF-EPS and GFS-ENS show HDDs materially higher than the 30-year average. In addition, the ECMWF-EPS long-range outlook showed the bullish weather to persist into the end of April, leaving the higher than normal HDDs to remain in place.

This should push our preliminary injection estimates lower as the 15-day outlook confirms the bullish weather projections.

In addition, Lower 48 production has topped out around ~90 Bcf/d and has failed to regain that psychological level again.

Source: PointLogic, HFI Research

All-in-all, we see the risk/reward favored to being long in the coming days. We think natural gas prices are at least supported above ~$2.7 with our fair value for May contracts around $2.75/MMBtu. We are long UGAZ.

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.