The U.S. Energy Information Administration (EIA) on Thursday (June 9) reported a surprisingly bullish 65-Bcf injection for the week ended June 3—that was 8.0 Bcf below our Natgas Billboard estimate and more than 10 Bcf below the Bloomberg industry average assessment. In response, the CME/NYMEX Henry Hub July natural gas contract screamed about 15 cents higher following the report to a settle of $2.617/MMBtu, the highest daily settle for the prompt month in nearly 9 months. Thursday’s gains extended a rally that began on May 31 (2016) just after the July contract rolled to the front of the futures curve. It’s likely the rally was initially spurred by market participants looking to cover their short positions. But in the past week, an increasingly bullish fundamental picture has emerged prompting us to raise our price outlook (in our June 10 NATGAS Billboard report). In today’s blog, we analyze the fundamentals behind rising natural gas prices.
Ever seen a flash mob? It starts out small and seemingly spontaneous, with one or two brazen outliers busting out in what seem like an involuntary convulsion completely incongruous with what’s going on around them. But it quickly escalates into a well-timed, choreographed and synchronized ambush on unsuspecting onlookers as one after another apparent bystanders start joining in. And then, before you know it, it’s over—everyone and everything looks just as they did before. It’s as if it never happened. And you’re left feeling a little shell-shocked, inexplicably giddy, and also a little bit disoriented.
The NATGAS Appalachia weekly report provides the data and insights to monitor the northeast natural gas market’s twists and turns and identify the risks and opportunities along the way, including tracking supply-demand trends, outbound capacity and their impact on takeaway pipeline utilization, and regional prices.
That basically sums up the natural gas market over the past couple of weeks, with the exception of the last part, the market hasn’t gone back to the way it was before. Something seems to have fundamentally changed in the market, and prices have only continued climbing. The price graph in Figure 1 below says it all. Since the start of the traditional storage injection season (aka the gas market “summer” season) on April 1, the CME/NYMEX Henry Hub prompt futures contract had been puttering along in a choppy but confined pattern, mostly within a 10-cent range on either side of $2.00.
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About the song
“What's Going On” is the title of the single from the 1971 album of the same name by Motown artist Marvin Gaye. It was written after Four Tops member Renaldo Benson, along with fellow Motown songwriter Al Cleveland, wrote the first version of the song that was given to Marvin Gaye for consideration. Gaye loved the tune but rearranged it and added a new melody, sharing in the songwriting credits on the song.
When Gaye played the song to Motown label head Barry Gordy, he hated it, saying the song was too political to be a hit. Motown executives Harry Balk and Barney Ales disagreed with Gordy's appraisal and helped Gaye record the song and put out the single. It immediately became a smash hit, going to #1 on the Hot Soul Singles chart and #2 on the Billboard Top 100 chart. Barry Gordy was stunned by the success of the single and gave Gaye the green light to record and produce a complete album. The album was recorded between June 1970 and May 1971 and became the first Marvin Gaye album to reach Billboard's Top Ten in the Top LP category, and peaked at #6, staying on the charts for a year.
Marvin Gaye helped to shape the sound of Motown in the sixties with a string of hit singles. What's Going On was a revolutionary departure from focusing on hit singles to shifting toward an album-oriented consciousness with a recurring social theme. Marvin Gaye died in 1984 at the age of 44, fatally shot by his father at their Los Angeles home. Among his many awards is a Grammy Lifetime Achievement Award, induction into the Rock and Roll Hall of Fame, and a star on the Hollywood Walk of Fame.
Comments
The EIA report shows a big "0" for salt in the past report. Have you any thoughts on why that happened?
Our thought is that the side effects of the flooding in TX --- lower production, lower coal generation and low ERCOT wind generation --- all combined to reduce South Central storage injections in the week ended June 3. As a result, we expected no change in salts, which the EIA report supported. But at the same time, we didn't expect the change in non-salt storage to be as low as it was.
The EIA posted another 2 bcf draw from salt. Is their model wrong ?
The EIA data isn't perfect but it is the best gauge and the benchmark the market uses to calibrate their data. As for the small net withdrawal in Salts, NATGAS Billboard/IAF model also had expected a withdrawal of around 5 Bcf from Salts and we ended up being 3 Bcf higher.
Looking at the historical weekly EIA storage data, withdrawals from Salts aren't all that unusual during injection season, particularly in the hottest months (July/August). And temperatures last week were not far off from what we would normally see in July/Aug. Texas in particular was warmer. With the hotter weather, prices in the physical spot market were higher, which likely enticed some gas out of storage.