The Commodity Natural Gas Bulls Need Most: Patience
2023.08.03 05:09
- South-Central America is baking, power burns are off the charts
- Yet, gas prices are heading south, not north, as supply stays adequate
- Front-month Sept gas on Henry Hub must clear $2.60 for rally to resume
The weather in the U.S. couldn’t be any hotter, especially in the South-Central region. Air conditioners are being cranked to the hilt day and night. Yet, prices aren’t going north but south because supplies are, somehow, adequate to keep up with the maddening heat and power burns.
But that could change in due course, we hear, to the benefit of the longs. Thus, the only real commodity gas bulls probably need now is that thing called patience.
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Veteran market analyst Eli Rubin, in an articulation of the aforementioned point, points to undergone caverns in naturally-occurring salt domes in the U.S. South-Centre where gas is stored. According to him, last week’s draw of 11 billion cubic feet, or bcf, from south-central salts caverns despite tame physical market pricing “may implicitly point to a key clue restraining natural gas spot prices.”
He added that fast-cycling salt storage caverns could inject and withdraw natural gas multiple times per year.
As such, with operators eyeing huge seasonal spreads this fall, October gas on the New York Mercantile Exchange’s Henry Hub was trading more than 40 cents below November, over 80 cents below December and more than $1 under January 2024, “liquidation of storage inventories into particularly strong power sector demand has kept the market well supplied and physical pricing low.”
John Sodergreen, who publishes a weekly note on gas under the heading of “The Desk,” noted that the week ended July 28 was “one of the hottest weeks of the year,” adding:
“Power prices from the Northwest to the Southwest climbed to levels not seen in many moons. Power sector gas burns (and all else) were up all over the quad. This week, well, a bit of a reprieve.”
Turning to today’s due from the U.S. Energy Information Administration, or EIA, forecasters are calling for an injection of 17 bcf for the week ended July 28. That would compare with a 37-bcf injection for the same week last year, as well as the five-year average, which was also 37 Bcf. In the prior week to July 21, there was a draw of 16 bcf.
While another significant salt draw could feature in the EIA report for last week, gas prices could remain range bound in the mid-$2 territory for each mmBtu, or million metric British thermal unit, those in the know say.
Rubin of EBW, however, says that over the next 30 to 45 days:
“Marketers turning from liquidating physical supplies to injecting ahead of the upcoming autumn could yield a more supportive market dynamic for NYMEX futures.”
Patience, stressed once again.
Still, not all forecasters feel strongly about a gas price spike before fall.
Futures on the Henry Hub have fluctuated on either side of $2.7 for months now, but Wednesday’s decline moved the goalposts a bit further out of reach, sending the front-month September contract down 8.3 cents to settle at $2.477.
Rhett Milne of NatGasWeather.com says after today’s storage report, the EIA was expected to cite two more consecutive builds “a little smaller than normal” due to widespread above-normal temperatures beside the Great Lakes and northeastern US.
He adds:
“Going forward, if widespread heat can hold in mid-to-late August, along with some tightening in the supply-demand balance, surpluses [in storage] could be reduced toward 275 bcf before September. Without a hot enough pattern, surpluses will hold near to slightly under 300 bcf.
From a purely technical perspective, Sunil Kumar Dixit of SKCharting.com tells us that the front-month September contract on the Henry Hub was trading with a temporary bearish bias below the daily Middle Bollinger Band of $2.60 as well as under the 50-day EMA, or Exponential Moving Average, dynamically positioned at $2.55.
“The 100-day SMA of $2.39 keeps supporting gas futures from below,” Dixit said.
Dixit said September gas’ daily RSI, or Relative Strength Index, at 44 was positioned below neutrality of 50 while the daily Stochastics at 7/15 indicated oversold conditions.
Consolidation above the 100-day SMA, or Simple Moving Average, of $2.39 will resume an upward move towards 50 Day EMA of $2.55, above which the Daily middle Bollinger Band $2.60 needs to be cleared for resumption of uptrend.
“A break below $2.39, followed by a day close below the zone will eventually turn momentum bearish with potential drop to $2.10,” Dixit says.
So, be patient and cautious.
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Disclaimer: The content of this article is purely to educate and inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically 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.
