Weekly Natural Gas Storage Report - Low Prices Will Tighten Balances

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

EIA reported a storage build of 123 Bcf for the week ending April 26.

This compares to the +115 Bcf we projected and consensus average of +116 Bcf.

For the week ending May 3, we have a storage build of 95 Bcf. November EOS is forecasted to be 3.72 Tcf.

Natural gas prices are low enough to start stimulating power burn demand, which has started to tighten balances. Lower 48 production is also struggling to move higher.

We started a 1/4 sized UGAZ position. We think it's time to start getting long.

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

EIA reported a storage build of 123 Bcf for the week ending April 26. This compares to the +115 Bcf we projected and consensus average of +116 Bcf. The +123 Bcf was significantly higher than the five-year average of +70 Bcf and last year's +62 Bcf.

Source: EIA

Next Week's Estimate

For the week ending May 3, we have a storage build of 95 Bcf. November EOS is forecasted to be 3.72 Tcf.

Low prices will help tighten balances

There's no doubting that the natural gas balance today is in surplus.

Our latest estimate shows the market to be in surplus to the tune of 4.96 Bcf/d. But all is not lost given this surplus. First, the natural gas balance today comes at a time when seasonal demand is at the lowest in the year. So while TDDs have been higher than average, the impact on balances is not significant. Second, with prices around $2.5 to $2.6, power burn demand and others are getting a boost which has pushed total demand above last year:

This combined with new LNG exports coming online will help alleviate some of the surpluses we see in the market.

In addition, Lower 48 production has struggled to maintain ~90 Bcf/d. Our estimate had production averaging above 90 Bcf/d by now, so this is aiding the bulls.

Source: PointLogic, HFI Research

What we find interesting today is that the big storage build estimates will be priced in very soon. For example, we already have projections to the end of May and the storage deficit to the 5-year average will dwindle:

But market participants have to ask, are natural gas prices today already factoring this in?

We think so and we have taken a 1/4 sized long position in UGAZ today.

We plan to keep adding to our long position over the coming weeks. We think natural gas prices are bottoming and we think it's time to go long.

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.