Contributor Kyle Cooper breaks down the most significant developments in last week’s natural gas market.
Price Action: Prices found support with the now prompt June contract rising 17.1 cents (8.5%) to $2.186 on a 29.0 cent range. The price increase broke a four week string of lower prices.
Price Outlook: This week’s storage report was accompanied by a multi week revision that lowered previously reported levels by a total of 11 BCF. The temperature adjusted supply/demand balance remains in very bullish territory and it is considered more and more likely that the recent low of $1.902 stands intact for the next couple of months. Moderate/mild summer temperatures may again bring lower prices into play. However, the 863 BCF storage surplus remains a very bearish factor and a sustained price rise over $3.00 is not considered likely. Rather a range bound market between near $2.00 and the mid to possibly upper $2 range is considered likely for the next couple of months. CFTC data again indicated a slight increase in the net long position across the entire complex. CME futures open interest did drop on the May contract expiration to 1.259 million. However, prior to the option and futures expirations, total open interest across the complex rose to 6.356 million contracts on April 24, 2012.
Weekly Storage: US working gas storage rose 47 BCF for the week ending April 20. Current inventory levels of 2,548 BCF now rise 863 BCF (51.2%) above last year while surpassing the 5 year average by 911 BCF (55.6%). This week’s storage report was accompanied by revisions dating back to March 23 as multiple respondents revised data. It is considered likely that due to the record seasonal storage level, engineering reevaluations are occurring across the country, resulting in changes to reported data. Canadian storage levels are also considered bearish with inventories already at 70% of overall capacity. Western Canadian storage facilities are at 79% capacity.
Storage Outlook: While the current S&D balance does not portend storage capacity constraints, a record storage level is still forecast in October or November. There is little room for bearish fundamental developments this injection season.
Supply Trends: Total supply fell 0.6 BCF/D to 67.8 BCF/D. Lower US production and a drop in imports combined with higher Mexican exports to decrease supply. The US Baker Hughes total rig count slipped as both oil and natural gas activity fell. Canadian rigs continued the normal seasonal fall. The total North American rig count fell 39 to 2,079. The total North American rig count now stands just 128 higher than last year. The higher efficiency horizontal rig count fell 16 to 1,139, 116 higher YOY.
Demand Trends: Total demand fell 3.8 BCF/D to 60.5 BCF/D as increased power demand was more than offset by decreases in the R&C and industrial sector. Electricity demand rose 891 gigawatt-hrs to 68,566 which is 2,143 (3.0%) below last year, but 375 (0.6%) above the 5 year average. Above normal temperatures will not lift total demand until late May or even June on a national basis.
Other Factors: Equity markets surged despite jobless claims that remain concerning. Stellar Apple earnings seemed to support the overall market.
