Welcome to the fundamentals balanced edition of Natural Gas Daily!
A housekeeping item first.
For the week ending June 28, we have a storage build of +85 Bcf. This would be compared to +78 last year and +70 for the 5-year average.
LNG Export Hits Record High, Fundamental Balances Fall To Neutral
Lower natural gas prices are doing their thing. Projected supply and demand fundamental balances are all but back to neutral.
You can also see this via our storage build projections vs. the 5-year average chart:
Source: EIA, HFI Research
As the fundamental balances tighten and indicate a more neutral balance going forward, the only remaining question would be - where should natural gas prices be if fundamental balances are neutral?
Well, we can take a look at the demand variables and see which ones are price sensitive. A large part of this year's demand driver has been LNG exports:
Source: PointLogic, HFI Research
We are now seeing LNG exports hit a new all-time high today. Along with record Mexico gas exports a few weeks back, total gas demand has steadily trended higher y-o-y despite the lackluster cooling degree days in June.
In fact, June 2019 was one of the colder Junes since 2000.
Now compare that to last year, which was the second hottest June since 2000.
But despite the lower CDDs, power burn averaged "higher" than last year:
As impressive as this may be, readers should always remember that during the summer months, natural gas fundamentals self-correct themselves.
Given this set-up, we think it's conservative to say that the "balancing" price is $2.50/MMBtu, but this ignores any potential weather surprises going into the second half of July. For the time being, cooling degree day forecasts for the next 15 days show a neutral to slightly bearish outlook. This means that the bulls won't get their "mother nature" tailwind just yet.
But the weather is unpredictable and if CDDs do trend higher than the norm at the end of July, then we see prices going to $2.75 vs. $2.50.
For now, we remain long natural gas as we believe prices are undervalued. We see the upside to $2.50 at least.
We will be watching weather models closely, so if you are trading natural gas and need guidance on weather, fundamentals, and trader positioning, we think you should sign-up for HFI Research Natural Gas. We are currently offering a 2-week free trial, so come and see for yourself why we are the largest natural gas research service on Seeking Alpha. Sign-up here for a 2-week free trial!
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.