Weekly Natural Gas Storage Report: Early June Outlook Is Bearish

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

EIA reported a storage build of 85 Bcf for the week ending May 3.

This compares to the +89 Bcf we projected and consensus average of +87 Bcf.

For the week ending May 10, we have a storage build of 100 Bcf. November EOS is forecasted to be 3.70 Tcf.

We remain long our 1/4 sized UGAZ position. TDDs are projected to be higher than normal for the next 15 days.

But ECMWF-EPS long-range showed June outlook to be colder than normal, which would suggest very sizable storage builds. This is something the bulls have to watch closely.

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

EIA reported a storage build of 85 Bcf for the week ending May 3. This compares to the +89 Bcf we projected and consensus average of +87 Bcf. The +85 Bcf was higher than the five-year average of +70 Bcf but lower than last year's +89 Bcf.

Source: EIA

Next Week's Estimate

For the week ending May 10, we have a storage build of 100 Bcf. November EOS is forecasted to be 3.70 Tcf.

Trading Position

We remain long our 1/4 sized UGAZ position. TDDs are projected to be higher than normal for the next 15 days.

Early June Outlook Is Bearish

Even though we are long at the moment, the latest ECMWF-EPS long-range outlook was not supportive of the bull case. For the time being, the June weather outlook appears to show a colder than normal set-up, which would keep CDDs at bay. You also can see this explanation from the Commodity Wx Group:

We estimate that if June is indeed colder than normal, then storage builds will be very sizable. We would see consecutive 100+ Bcf builds as low natural gas prices won't help offset the lower CDDs.

In addition, another bullish point - production - was recently eliminated as the drop we observed earlier in the week was corrected. Temporary outages impacted production, so we are seeing lower 48 production regain ~89 Bcf/d.

Source: PointLogic, HFI Research

With production higher and demand projected to be lower, this spells the bear case for natural gas. But readers must remember that during the summer gas trading period, prices tend to oscillate around a price band. Even though the storage builds will be large in June, we think the downside is capped by the higher power burn switching demand. But if Mother Nature is not supportive, we see summer gas prices capped at $2.7/MMBtu for the time being.

For the natural gas bulls, a hotter than normal summer is needed to boost demand and help eliminate the surplus we see in the market. The focus will quickly shift back to weather outlooks by the end of May.

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.