Natural Gas Bears Are Running Out Of Time To Push Prices Even Lower

Jul. 22, 2020 5:36 PM ETUNG, UGAZF, DGAZ, BOIL, KOLD, UNL34 Comments23 Likes

Summary

  • We have a storage build of +30 Bcf for the week ending 7/17.
  • The bear case is the strongest only in the short-term. And with the headwinds going away soon (LNG and shut-in returning), natural gas bears are running out of time.
  • Despite the large drop in projected cooling demand the last 2-days, natural gas prices failed to move lower indicating a near-term bottom is in.
  • LNG cancellations in September are only half of August putting flow back to 6-7 Bcf/d. After September, LNG flow should return to 8-9 Bcf/d effectively preventing a tank top situation.
  • For us, we are still playing the natural gas rebound via a long in EQT.
  • This idea was discussed in more depth with members of my private investing community, HFI Research Natural Gas. Get started today »

Welcome to the bears push hard edition of Natural Gas Daily!

Housekeeping item first.

We have a storage build of +30 Bcf for the week ending 7/17.

Natural Gas Bears Are Running Out Of Time To Push Prices Even Lower

On Monday, we published an article titled, "2 Ways To Look At The Natural Gas Market Today." In the article, we argued both the bear's case and bull's case. The conclusion we reached was that the bear thesis made the most sense but only if the trade was on a very short time horizon (less than 4-weeks), while the bull case is the strongest after August.

And as we inch closer and closer to August, the headwinds on the natural gas market are starting to dissipate. Namely, US LNG exports are expected to rebound back to ~6 to ~7 Bcf/d by September as cargo cancellations in September are set to be at half of what was seen in August.

In addition, despite cooling demand being revised sharply lower over the last several days, natural gas prices have failed to break to a new low.

Source: HFIRweather.com

This combined with factors like Lower 48 production being unable to move above ~90 Bcf/d despite shut-in productions returning offers concrete signs that fundamental balance will only be getting tighter as we move closer to year-end.

And after the September LNG nomination, there should not be any more LNG cargo cancellations for October as we approach higher winter demand season.

So in September, we expect LNG feedgas to return to 6-7 Bcf/d followed by a rebound back to 8-9 Bcf/d by October.

This will also help to prevent a storage tank top in the US as our EOS is currently sitting at 3.965 Tcf.

Net-net, the end result is that the bears are running out of time. Even with much lower cooling demand forecasted during peak power burn, prices have remained resilient likely signaling a bottom is here.

For us, we are still playing the natural gas rebound via a long in EQT.

Following a brief pullback, we see a move to $17.

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This article was written by

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Disclosure: I am/we are long EQT. 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.

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