Posted: Nov. 07th 2019
Research – Natural Gas Storage Report – 7 November 2019
Net injections to storage totaled 34 Bcf for the week ending November 1, compared with the five-year (2014–18) average net injection of 57 Bcf and last year’s net injection of 66 Bcf during the same reporting week. Working gas stocks total 3,729 Bcf, which is 29 Bcf higher than the five-year average and 530 Bcf higher than last year at this time. The median estimate from analysts called for an injection of 45 Bcf. The early November cold has certainly been felt by the natural gas market. The increase in heating demand is evident by the smaller than expected injection into storage. At 3,729 BCF, and with colder temperatures seen this week and forecasted to continue into next week in the major consuming regions of the Midwest and East, the market should see its first storage withdrawal of the season from next week’s storage report. The early November cold has forced the natural gas futures market into a short-covering rally over the last week and a half of trading. Speculative traders that shorted the natural gas market for most of 2019 have been covering positions and allowing prices to climb to levels not seen since winter of last year. The short-covering rally is impressive as Dec19 futures have surged from $2.30 in late October to a recent high of $2.90. Gains in the Jan20-Mar20 contracts are also impressive. The rest of the 2020 curve and outer years have moved higher but not nearly as much. The price action looks a little exaggerated and overbought at this point in time; thus, a correction and consolidation period could be seen in the event that weather forecasts start to show a more normal pattern for the balance of November. Open interest in natural gas futures has been decreasing not increasing which seems to favor the price action to be short-covering related only. Without new length being added by the speculative trade, a continuation of this rally is going to be tough. Had the current natural gas market fundamentals (i.e. supply and storage) been what they were a year ago at this time, the market would have had deja vu on the way to $4-$5/DTH NYMEX pricing again. Volatility in the natural gas market has again proven to be both alive and well. Since it’s been limited to only the front month contracts, the recent trading pattern is yet again another good reason to consider a longer-term hedging/price risk management strategy when securing gas supply for future needs.