Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Natural Gas Bulls Vulnerable To More Market Swings As U.S. Heat Peaks

By Barani Krishnan/Investing.comCommoditiesAug 04, 2022 04:58AM ET
www.investing.com/analysis/natural-gas-bulls-vulnerable-to-more-market-swings-as-us-heat-peaks-200628051
Natural Gas Bulls Vulnerable To More Market Swings As U.S. Heat Peaks
By Barani Krishnan/Investing.com   |  Aug 04, 2022 04:58AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • US gas futures face bearish pressure as output rises, summer heat wanes
  • $8.50 could be a resistance; with a break beneath $7.50 opening the door to $6.50
  • Freeport stays a factor, though a faster restart of LNG plant could be bullish

The pendulum is swinging again in natural gas, and this time, it seems headed lower.

Natural Gas Daily
Natural Gas Daily

After three weeks of moving up in sympathy with the European gas crisis—America, after all, is backstopping the bloc as its most important provider of liquefied natural gas—sentiment has reversed over the past two weeks for gas futures on New York’s Henry Hub.

In the past seven sessions, the hub’s front-month tumbled on four days, with the lower end of the drop being 3% and the higher end 7%. Wednesday’s rebound, for instance, saw the price almost entirely recover.

While volatility seems to balance things out, the path of least resistance could be lower from here.

And here’s why: US gas production is rising, with output of dry gas volumes hovering above 97 billion cubic feet per day (bcf/d) during late-day flow cycles on Tuesday.

Dry Gas Production
Dry Gas Production

Source: Gelber & Associates

Presently, dry gas production is up greater than 3 bcf/d year-over-year and continues to flirt with record highs near 97.5 bcf/d.

This level was last exceeded on July 18, when volumes hit 97.53 bcf/d. Overall, dry gas production has managed to remain propped up in recent days (even during workweek days), compared to the last few weeks when it would decline towards 96 bcf/d during the week and then rise above 97 bcf/d on the weekends.

And why is this important?

This bump-up in daily production is a promising indication that volumes could be on the cusp of advancing to new all-time highs above 98 bcf/d in the relatively near term.

Next, summer temperatures are waning. You know that maddening heat that had Americans running their air-conditioners day and night over the past month? Well, it’s dissipating.

About the only meaningful card that gas market bulls are holding now are hot temperatures across the US and less than comfortable storage volumes.

But despite the bullishness that reemerged on the Henry Hub late last week and on Monday, it appears that overall conditions no longer have the same sort of price-supportive drivers that had influenced gas futures to highs not seen since 2008 during the spring and early summer advance.

According to the major weather forecast models, temperatures across many areas of the US are poised to descend the lower side of the seasonal bell curve as the calendar presses into mid-August and beyond.

While the southern US tier will continue to see above-average temperatures for another couple of months, the northern tier, including the upper Midwest and the Northeast, should begin to see the onset of less hot conditions, which will start to reduce gas demand for cooling purposes.

Even though the forecast for the current two-week period into the first week of August depicts above-average temperatures, there are growing signs among the major weather forecast models that the heat could begin to gradually relent by the middle of next week.

As analysts at Houston-based gas markets consultancy, Gelber & Associates, told their clients in a note on Wednesday, getting beyond $8.50 on the Henry Hub might be challenging as the days progress, especially with the Freeport LNG crisis still hanging over the market.

After the initial panic that US gas-in-storage could be as much as 15% short of five-year norms going into 2022/23 winter, the tables suddenly turned with the Freeport LNG crisis. The explosion at the Texas-based liquefied natural gas plant on June 8 idled about 2 bcf per day of supply. Gas futures on New York’s Henry Hub that day seemed headed for $10, a level unseen since 2008, but then made a stunning U-turn, crashing almost 30% by early July on news that Freeport won’t be fixed until October.

That was, of course, before Moscow’s state-owned Gazprom (MCX:GAZP) squeezed the flow on its Nord Stream pipeline to Europe to 20% of capacity last month, sending benchmark gas prices on the bloc flying, with the Henry Hub in pursuit—till now.

Said the Gelber & Associates note:

“Additional upside potential beyond the mid-$8.20s may be limited in the near term. Besides the continued loss of Freeport LNG feed gas demand, gas market players are now more fully attuned to the potential for further gas supply increases. Should this outlook [be] verified, it could result in a loosening of supply/demand imbalances, which would present a challenge to gas market bulls to keep upside pressure on prices.”

Technical charts also suggest that $8.50 would be the level for gas bulls to beat, said Sunil Kumar Dixit, chief technical strategist at skcharting.com. He adds:

“Prices need a sustained break above $8.50 for a retest of $9 and above. A break below $7.50 will change the momentum to bearish, for a drop to even $6.50.”

The Gelber & Associates note concurs with Dixit’s projections, which it said might come as weekly gas storage starts building between mid-to-late August and November 1. The firm adds:

“Should this be the case, it could result in a sizable drop in front-month gas futures later this fall [season], potentially tumbling below $7 or perhaps notably lower, depending on how aggressive production volumes grow and where gas storage totals sit in the months ahead.”

Natural Gas Storage
Natural Gas Storage

Source: Gelber & Associates

And that storage build should be at a smaller-than-usual 29 bcf for last week, as extreme heat caused power generators to burn more gas to keep air conditioners humming, according to a consensus of analysts who track such numbers.

The build compares with an increase of 16 bcf during the same week a year ago and a five-year (2017-2021) average injection of 33 bcf.

In the week ended July 22, utilities added 15 bcf of gas to storage.

The injection analysts forecast for the week ended July 29 would lift stockpiles to 2.445 trillion cubic feet (tcf), about 12.5% below the five-year average and 10.3% below the same week a year ago.

According to Reuters-associated data provider Refinitiv, there were around 105 cooling degree days (CDDs) last week, which was much more than the 30-year normal of 90 CDDs for the period.

CDDs, used to estimate demand to cool homes and businesses, measure the number of degrees a day's average temperature is above 65 degrees Fahrenheit (18.3 C).

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.

Natural Gas Bulls Vulnerable To More Market Swings As U.S. Heat Peaks
 

Related Articles

Natural Gas Bulls Vulnerable To More Market Swings As U.S. Heat Peaks

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (6)
Phong Nguyen
Phong Nguyen Aug 04, 2022 9:17AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
4-5 range will be here by September. NG has been outrageously overpriced too long. I see violently quickly correction is coming soon, very soon.
Barani Krishnan
Barani Krishnan Aug 04, 2022 9:17AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Totally with you on the overpricing bit, conceived almost entirely on the storage situation that seems to have gotten better over the past two months. Besides the domestic seasonal heat, the European situation has been the driver the past couple of weeks.
Liam LL
Liam LL Aug 04, 2022 8:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Found many ppl don't read whole article But just title and few sentences. Sir, u might put everything in title to avoid misunderstanding. Lol
Barani Krishnan
Barani Krishnan Aug 04, 2022 8:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ha ha ... lots of suffering people here, Liam. Thanks for the vote of confidence and a happy weekend, mate!
umair eg
umair eg Aug 04, 2022 8:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
If gas goes above 8.50 ill be posting this article as a reminder of how novice you are. It might actually happen today
SunilKumar Dixit
SunilKumarDixit Aug 04, 2022 8:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Umair egg. Author has very precisely written that bulls need to overcome $8.50 resistance before Gas can rise to $9.0 and it does not mean that price will not go above $8.5 Read the story well and understand the context before jumping without parachute.
Barani Krishnan
Barani Krishnan Aug 04, 2022 8:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Oh Lord, you really someone to break it down to you, don't you? Okay, let's go over this again: The front-month has remained below $8.50 since July 29, making it not only the immediate barrier to break, but also one to persistently sustain over, in order to retest highs towards $9. Good so far? Here's what Sunil says: “Prices need a sustained break above $8.50 for a retest of $9 and above. A break below $7.50 will change the momentum to bearish, for a drop to even $6.50.” No one's saying that $8.50 won't happen at the highs of the day. But you need to consistently stay over that level to advance higher. Gelber & Associates has a somewhat similar opinion, telling their clients that getting beyond $8.50 might be challenging as the days progress, especially with the Freeport LNG crisis still hanging over the market.
SunilKumar Dixit
SunilKumarDixit Aug 04, 2022 8:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Barani sire. Looks like you will have to write two versions of the story. One that is real and the other that suits cpu. Lol
SunilKumar Dixit
SunilKumarDixit Aug 04, 2022 8:33AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
*the other one that suits for egg's CPU
umair eg
umair eg Aug 04, 2022 8:21AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You have zero technical analysis skills. Sorry not sorry.
Barani Krishnan
Barani Krishnan Aug 04, 2022 8:21AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I'm actually sorry that you have zero understanding of most things you comment on, Umair. As Liam LL suggests, you grabs bits here and there, then make comments that show your utter lack of comprehension of what the broader story is all about.
JK JK
JK JK Aug 04, 2022 6:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Once again,nice work, Barani.
Barani Krishnan
Barani Krishnan Aug 04, 2022 6:04AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks much, JK, and hope all's well with you, mate.
António Carlos Galhano
António Carlos Galhano Aug 04, 2022 5:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
so what I see is Ngas increasing its price and not decreasing.
Barani Krishnan
Barani Krishnan Aug 04, 2022 5:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Possibly within the $8.50 channel. It needs to make a clear break and sustain above that.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email