Is the rally slowing down? In a sense, the answer to this question depends on the weather, which eventually softens in some important areas of the US market.
The so-called off-season, which lasts from winter to late spring, officially began several weeks ago. However, instead of mild temperatures that require neither heating nor air conditioning, this off-season has brought with it low temperatures in the eastern United States over the past five weeks, causing the region to consume more than expected heating gas.
“Changes in the weather could mean that Energy Information Management (EIA) gas stocks published every Thursday may start to rise as utilities draw more gas into underground storage due to reduced production demand.».
This will eventually reduce the upward pressure on Henry Hub gas prices.
“Infusion rates are expected to be at the five-year average for the next two weeks to the end of May, after which the easing of the weather at the end of May will allow infusion volumes to increase to finally exceed the five-year average for corresponding weeks “, said the analysts of the gas consulting company Gelber & Associates in a note to the clients this Wednesday.
“As a result, despite the continuing rise in gas prices, the giant difference of 306 billion cubic feet between total reserves and the five-year average should be reduced, which could limit the scope for further price increases.”
However, judging by the current chaotic price dynamics of Henry Hub, the market is still very hot.
The nearest futures (June) continued its upward trajectory on Thursday, rising almost 35 cents to $ 7.72. On Monday, prices fell more than $ 1, shaking the foundations of Friday’s rally, which brought gas close to $ 9 for the first time since August 2008.
Until last week, there was growing confidence among market participants that this rally would not stop until it reached $ 10. Many bulls still expect prices to reach 2008 lows above $ 13 by this summer, with high temperatures forcing Americans to turn on their air conditioners. An additional boost to the rally could come from Europe’s unexpected demand for liquefied natural gas (LNG).
For now, however, market volatility is likely to remain a major issue at the moment, which, after two months of 28% growth (March and April), has begun to feel pressured by changing weather conditions and some improvement in stock levels.
The charts also show the probability of a downside scenario.
“With a withdrawal below $ 7.29, gas prices could fall to $ 7.03 and try again at $ 6.43,” said Sunil Kumar Dixit, chief technical officer at skcharting.com. .
“However, with a steady break above $ 7.72, the market could continue to rise to $ 8.06 and, with sufficient trading volume, try again at $ 8.996,” Dixit added.
Source: Gelber & Associates
The U.S. increased 79 billion cubic feet in the week ended May 6, compared with an increase of 70 billion cubic feet a year earlier and a five-year average (2017-2021) of 82 billion cubic feet, according to analysts surveyed by Investing .com.
In the week ending April 29, utilities pumped 77 billion cubic meters of gas into storage facilities.
If analysts are right, total stocks should have reached 1.646 trillion cubic feet last week, about 15.8% below the five-year average and 18.5% below the same period last year.
According to Reuters data provider Refinitiv, last week was a total of 71 points a day, below the normal 30-year-old age of 67.
The total degree of days (TDD) is used to estimate the demand for heating and air conditioning in homes and institutions. The index is based on the average daily outside temperature for the days that were below or above the baseline temperature of 18 ° C (65 ° F).
In general, except for changes related to weather conditions, market demand increased slightly last week.
The increase in US production was offset by the decline in Canadian imports, leaving the supply balance almost unchanged from the previous week.
Meanwhile, Mexico’s LNG exports fell by about 0.1 bcm / day, while average LNG exports remained unchanged from the previous week.
Changes in production sources were the main driver of the increase in gas demand last week. The reduction in national wind energy production, averaging about 51,000 megawatts per hour, has forced independent operators to rely more on natural gas, an estimated stockpile of 10 billion cubic meters, according to those familiar with the matter.
According to Bespoke Weather Services, meteorological forecasts for the next two weeks and beyond show unusually high temperatures and high demand for air conditioning gas in many parts of the southern United States. Cooling rating days (CDD) are likely to increase as the month progresses, providing price support.
“We have reached the stage where CDDs are becoming a major driver of demand,” Bespoke said in a comment posted on naturalgasintel.com.
“Warm weather is expected in the south this coming weekend and early next week, with forecast high temperatures of 100 degrees [по Фаренгейту]in Dallas and San Antonio, among others, is a very remarkable phenomenon for mid-May.
At the same time, strong winds are expected in Texas next weekend, which could further increase consumption, adds Bespoke. “Although after that the heat in the south will probably subside. “Temperatures higher than the climatic norm will prevail until the end of May and the beginning of June”, the experts point out.
Meanwhile, despite breaks in spring precautionary maintenance, LNG exports from the United States in May still exceeded 12 billion cubic meters per day. Europe is cutting gas supplies from Russia, and US suppliers are helping to fill the gap.
Denial of responsibility: Barani Krishnan cites financial data and views of other analysts, sometimes contradictory, to provide a comprehensive market analysis. He does not hold a position in the goods and titles referred to in the article.