Welcome to the supplies edition of Natural Gas Daily!
Housekeeping item first.
For the week ending 4/24, we have a build of 70 Bcf.
Basis differentials have led the way so far, with Waha basis tightening by half over the last 2 weeks. Traders we survey expect Lower 48 production to be materially lower in the coming weeks. Maintenance-related issues today dropped production, but overall volumes are trending in the right direction. We expect ~90 to ~91 Bcf/d in May.
In April, we have likely seen the trough for COVID-19 related demand issues. Industrial demand is starting to bottom out.
And Mexico gas exports are starting to rebound.
Finally, power burn demand should start trending materially higher as cooling demand starts to take over as the main demand driver.
All of this means that the implied market deficit will increase in the coming weeks. At the moment, the demand drop has outpaced the supply drop which has pushed the market back into a balanced one.
Source: EIA, HFI Research
But as the supplies drop below ~92 Bcf/d, we expect the deficit to pile up. By the end of the year, we are expecting anywhere from ~82 to ~86 Bcf/d for Lower 48 production further adding to the supply deficit we are going to see in the coming weeks.
Our trading plan is that, once the early May data confirms our analysis that production is set to drop to ~90 to ~91 Bcf/d, we will look to re-short DGAZ.
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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.
Additional disclosure: SHORT DGAZ