Into The Vortex – Natural Gas Outlook in The Shoulder Season

EIA reported natural gas storage build in the U.S. last week came in more than expected at +24Bcf in storage with consensus a build of +14Bcf. For perspective in the same week last year stocks were +11Bcf, with a five-year average +24Bcf. The withdrawal season is ending with stocks at the highest level in years. On March 21 the EIA reported the first natural gas injection into storage of the 2024 season. U.S. natural gas dry production on Friday was 99.1 Bcfgpd according to BNEF. Ahead of this week’s storage report natural gas futures rallied for a fourth consecutive session on Wednesday. Bullish cues came from leaner production and recovering LNG export levels amongst ETF buying.

Against that is continuing weakening weather-driven demand and abundant storage. EIA natural gas inventories remain high relative to the five-year average as the United States enters the shoulder season when there is typically less U.S. natural gas consumption than at other times of the year.

Natural gas Storage

This winter (November–March) was mild throughout much of the United States, and the country experienced 8% fewer heating degree days (HDDs) than the 10-year average. The EIA expect U.S. inventories of natural gas will total 2,270 Bcf at the end of the winter heating season on March 31, 37% above the previous five-year (2019–2023) average for March, contributing to historically low natural gas prices and to their expectation of low prices for the next several months.

U.S. natural gas futures are down about 28% so far in 2024 after plunging by 44% in 2023. Natural gas for May delivery was up around 1.8% higher this week. Natural gas has been hit by less weather-related demand and a supply glut impacted by associated liquids with oil prices remaining elevated keeping oil production high. With oil prices high associated continues to flood the market as oil producers pump near all-time highs. West Texas Intermediate crude for May delivery settling at $83.17 a barrel on the New York Mercantile Exchange. Front-month prices rose 6.3% in March and gained 16.1% for the quarter.

Into The Vortex Contents

Click on the links below to navigate to the relevant section.

  1. EIA Natural Gas Storage Forecast and Analysis
  2. Natural Gas Quick Summary
  3. Rig Watch
  4. Weather
  5. LNG and Export Watch
  6. Natural Gas Import Watch
  7. Natural Gas Demand Watch
  8. Nuke Watch
  9. Natural Gas Futures Technical Analysis
  10. Option Volatility and Gamma
  11. DCOT Report

It seems ages ago that the caveats keeping bulls buying the dip were the unknown in Europe since Russia’s invasion of Ukraine, the price of coal switching and the shutdown of Freeport LNG. All that is left of Russian gas flows to Europe is one operating point in Ukraine via Sudzha. TurkStream, the only other pipeline still in operation supplies gas to Russia ‘friendly’ nations. Energy prices remain the biggest contributor for input inflation.

Europe moved aggressively to wean itself off Russian natural gas supplies with U.S. exports of liquefied natural gas expected to remain strong for some time.

EIA Weekly Storage Report

  • Report Date: 4/4/2024 Via TradersCommunity.com
  • Release Time: Thursday 4/11/2024 10:30 p.m. ET
  • Market Expectations
  • Actual +24Bcf Prior -37 Bcf
  • Consensus Forecast +14 Bcf
  • Cons. Range +9 Bcf to +18 Bcf
  • Last Year:  +11 Bcf
  • 5 Year Average: +24 Bcf
US Natural Gas Storage

Summary

Working gas in storage was 2,283 Bcf as of Friday, April 5, 2024, according to EIA estimates. This represents a net increase of 24 Bcf from the previous week. Stocks were 435 Bcf higher than last year at this time and 633 Bcf above the five-year average of 1,650 Bcf. At 2,283 Bcf, total working gas is above the five-year historical range.

Broken down by region.

us natgasl locations

Current Storage Level vs. Last Year; 5-Yr

  • Current Storage Level: 2,283 Bcf
  • Storage 2023/Same Week: 1,848 Bcf
  • 5Yr Avg/Same Week: 1,650 Bcf
EIA Storage Report

Global Natural Gas Quick Overview


Natural Gas Futures Performance

Natural Gas Market Price Influence Factors

Bearish Factors Include

  • Economic damage and reduced natural gas demand caused by events such as the Covid pandemic,
  • Warm U.S. winter that results in weak demand for natural gas for heating.
  • Over long spec positions
  • Freeport LNG Outages
  • Expectations that the high level of oil prices would increase shale drilling and natural gas extraction as a by-product
  • The Gulf coast hurricane season was quite inactive. The North Atlantic Ocean has experienced the quietest months of July and August since 1941in 2023. Named storms skipped August in the Atlantic only three years on record: 1997, 1961, and 2022. (This is bullish or bearish depending on where the storm comes onshore)

Bullish Factors Include

  • Record foreign demand for U.S. natural gas flows to U.S LNG export terminals. On April 18 rose to a record 11.921 bcf (data from 2014) and after U.S. LNG exporters loaded a record 81 cargoes in November, breaking the previous record of 75 set January of 2020, (This was before the Russian invasion of Ukraine – which has led to even greater demand for US LNG)
  • The lower level of oil prices and ESG politics reduced shale drilling and natural gas extraction as a by-product.
  • Tighter U.S. natural gas supplies
  • High power burns
  • Perception that gas supply and demand are more inelastic than ever before.
  • Over short spec positions
  • European gas price cap

Rig Watch 

Baker Hughes active rigs total in the U.S. onshore and Gulf of Mexico (GOM)

  • US Baker Hughes Rig Count Apr 5: 620 (prev 621)
  • Rotary Oil Rigs Apr 5: 508 (prev 506)
  • Rotary Gas Rigs Apr 5: 110 (prev 112)
  • Baker Hughes reported the number of active U.S. natural gas drilling rigs in the week ended Apr 5, 2024, was down 2 at 110 rigs at their lowest since January 2022. Below the 19-month low of 113 rigs posted September 8, 2023. Active rigs last year fell back after climbing to a 4-year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).
  • Last month the total rig count fell by five, with the oil count rising by three, and gas down by eight, the biggest monthly decline since August.
  • In the first quarter, the total rig count fell by one in its fifth quarterly loss in a row. The oil rig count rose by six, the first quarterly increase since the fourth quarter of 2022, while gas was down by eight.
  • The oil and gas rig count dropped about 20% in 2023 after rising by 33% in 2022 and 67% in 2021, due to a decline in oil and gas prices, higher labor and equipment costs from soaring inflation and as companies focused on paying down debt and boosting shareholder returns instead of raising utput.

US Rigs w/w changes by key shale basins (prior Week)

  • Permian +1 to 310
  • Eagle Ford unchanged at 50
  • Williston unchanged at 34
  • Cana Woodford unchanged at 21
  • DJ Niobrara -1 to 11
  • Mar 28, 2024

The Baker Hughes #Natgas Rig Count resumed its downtrend this week, falling by -4 rigs to 112 rigs, down -50 rigs or -31% vs 2023 & the lowest since January 14, 2022. The cure for cheap prices is cheap prices. @CelsiusEnergyFM Mar 22

Canada Rigs

  • Canada’s active rig count came in at 139 Thursday, 9 rigs more than last Friday.
  • Alberta rig activity increased, with the province’s active rig count jumping from 96 to 106. Saskatchewan’s rig count fell by 2 (from 7 to 5), BC’s active rig count held steady at 27.
  • Oil rigs increased from 67 to 72 between March 22 and March 28.
  • Gas rigs increased by 5 as well.
  • The number of rigs classified as “Other” or “Unknown” decreased from 5 to 4.2
  • Today’s rig utilization rate is 38.1%, a decrease from 42.6% at last week’s end. The total number of rigs increased by 59, settling at 364.
  • BOE Report

Talking About the Weather


There are every indication that geopolitical and climate risks will only intensify going forward. How secure are global supply chains in a world hamstrung by today’s energy and climate uncertainties? What might global inflationary and economic consequences be if China’s extreme drought persists into next year?

Gulf of Mexico

Gulf of Mexico Live Weather Report
Hurricane Season

On average, there are 14 named storms in a hurricane season in the Atlantic Basin, according to data collected between 1991 and 2020, with the first hurricane typically recorded by Aug. 11, and the first major hurricane occurring by Sept. 1. With about a week of August in the books, it’s not likely the Atlantic basin will record its first hurricane of the season by Aug. 11 this year.

In the last two years the third month of hurricane season can be extremely active. Four named storms were spawned during the month of August in 2021, including the powerful Hurricane Ida that devastated communities from Louisiana to New Jersey at the tail end of the month. In 2020, the devastating Hurricane Laura made landfall along the Gulf Coast as a Category 4 storm, the 12th named tropical system of the season. And in 2019, Hurricane Dorian, one of the basin’s strongest-ever hurricanes, formed in late August before making its destructive landfall in the Bahamas on Sept. 1 of that year.

There have been four other times over the past 30 years in which the Atlantic basin has been devoid of named storm activity between July 3 and Aug. 3, 1993, 1999, 2000 and 2009, according to data analyzed by Colorado State University meteorologist Philip Klotzbach.

Paths of Recent Gulf Hurricanes

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Summer Heat

Last summer was a summer dominated by record heat, which has seen a barrier to building storage inventories as intense heat in June and July has used up more gas for power generation. In Texas alone, the electric grid operator for 90% of the state, the Electric Reliability Council of Texas (ERCOT) has seen its peak power loads set fresh records on 11 days that summer.


La Nina

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The La Nina phenomenon begins when the atmosphere reacts to a cooler patch of water over the Pacific Ocean. This raises the likelihood of Atlantic hurricanes, which could disrupt natural gas operations on the Gulf Coast late in the summer and early fall. La Nina conditions tend to allow more tropical systems to strengthen into hurricanes. 

Technical Analysis via KnovaWave 

Henry Hub Natural Gas Futures Weekly Chart Outlook via @KnovaWave

Daily: US Natural Gas futures are a great example of rebalancing mania. The market is still correcting the manic 5 post the Ukraine invasion. Since the breakdown of the correction channel with failed breakups we have continued to multi year lows in a pennant formation after holding the daily 1/8. We now look at our Adam’s theory fractal rules with fractal spits powering these moves lower. Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. Resistance is heavy: 2/8 and cloud above. Kijun, 50 dma and cloud. Support is previous lows. Important to watch how this energy was built for shape correlation.

Natural gas futures Weekly

Weekly:  Natural gas still correcting the past month when blew through all levels of support after breaking the weekly 50wma and the Kijun gave a kiss of death. From there we Broke down out of the corrective channel (Wave 4 or IV) to new multi-year lows. This week we closed right at the weekly Kijun and 1/8. around the 50wma and tenkan in the cloud. The instability stems from the sharp reversals that have failed indicative of speculative fervor like the previous impulsive spikes. Support is the 1/8 Sphere. Bulls need all the damage down to be rebuilt. Kijun is major resistance given energy higher came from a clean break of the Kijun.

The key has been rebalancing which we also can see in option vol and spec v’s hedger blending. The natural gas rebalanced after continued to fail and retrace with impulse after reaching its major target, the double top potential from 2014 which equated nicely to over 8/8 Weekly and showed true impulse off that to rebalance Chikou. It’s now a question of degree, 3 or 5? Impulse just shy of the 8/8 and Tenkan confluence.

  Natural Gas Production

Around 97% of production comes from the Lower 48 states (L48), excluding the Federal Offshore Gulf of Mexico (GOM). The other 3% will come from Alaska and the GOM.

U.S. natural gas production growth will primarily come from the Appalachia region in the Northeast, the Permian region in western Texas and southeastern New Mexico, and the Haynesville region in Texas and Louisiana.

Per today’s early-cycle pipeline data, #natgas production will fall to a 100.7 BCF/d, down -0.7 BCF/d vs last year & a 2-month low. If output can hold at this level or lower, expect supply/demand imbalances to be quite tight heading into the Shoulder & Cooling Seasons. @CelsiusEnergyFM Mar 26, 24
In January 2024, dry natural gas production increased by 1.4 Bcf/d year over year. Preliminary dry natural gas production in January 2024 was 3,202 billion cubic feet (Bcf), or 103.3 billion cubic feet per day (Bcf/d). – EIA @staunovo

Natural Gas Exports Watch

Total US natural gas exports: 21.7 Bcf/d, a 10.7% y/y increase. Highest natural gas exports for the month since we began tracking them in 1973 EIA @staunovo

LNG

Natural gas feed to LNG facilities Sabine Pass, Cameron, Calcasieu Pass, Elba Island, Cove Point, Freeport & Corpus Christi combined for Apr 12 was 11.75 Bcf.

  ++Charts via RonH @RonH999 – Visit Ron for daily updates 

Japan’s LNG inventories drop to the lowest level in years
💰 This will likely push utilities to procure more spot cargoes (or at least stop reselling long-term supply)
👍 Timing is good. Prices are relatively lower and European inventories are high, so little competition Stephen Stapczynski @SStapczynski Mar 26, 2024

Natural Gas Mexican Exports Watch

 Natural Gas Canada Import Watch

Natural Gas Demand Watch

Estimated US natural gas consumption in January 2024 was 3,696 Bcf, or 119.2 Bcf/d, an 11.8% y/y increase. Highest daily rate of natural gas consumption for any month since we began using the current methodology for consumption in 2001 EIA @staunovo

Natural Gas Nuclear Power Watch

US nuclear output for Apr 12 was 77,567.5 MW. This is +3.6 MW vs 5yr avg via @ronh999

ALERT Three Mile Island nuclear shut down permanently on Friday afternoon 9/29/2019.

Natural Gas Options Structure – Volatility (COT)

NYMEX ON NATURAL GAS OPTIONS CommodityVol.com @CommodityImpVol

NYMEX ON = NATURAL GAS OPTIONS (Live Link)

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ETF Roll Schedule

ETFs have a huge effect on natural gas price action, through option and futures expiration and pure speculation. There is HNU, HND, UNG, BOIL and KOLD that dominate.

Roll schedule for 2024 via @firstenercast

Natural Gas Futures Commitment of Traders (COT)

 Disaggregated Commitment of Traders (DCOT) via RonH Data ‏@ronh999 @ole_s_hansen

Latest ICE and CFTC Open Interest Data: 

Natural Gas DCOT futures only managed money traders WoW change

(Note at NG peak Highest Longs Ever 87% (since 2006) Lowest Longs 2020 24%)

  • For week ending Apr 02. 2024
  • WoW change.
  • +5,033 longs,
  • +2,622 shorts,
  • +2,411 net change,
  • 42.8% net long.

COT on Commodities

COT on commodities in week to March 19: Strong buying of crude oil (+105k to 509k), silver (+11.1k to 37.8k) and copper (+31k to 39.3k), helps to explain why these three suffered a setback as the dollar rally continued ahead of the weekend. Elsewhere, gold saw small profit taking, the #grains sector was bought for a second week led by soy and corn, cocoa longs in NY and Ldn both fell to +12 months lows despite another big price jump. More in my Monday update via Ole S Hansen @Ole_S_Hansen

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Understanding DCOT Reports

Read Understanding Commitments of Traders Reports – COT, TFF and DCOT  to help understand the disaggregated reports (DCOT) and how they break down the reportable open interest positions into four classifications:

1. Producer/Merchant/Processor/User 2. Swap Dealers 3. Managed Money 4. Other Reportables


Sources: TradersCommunity, EIA, RonH Energy, The Fundamental Edge, KnovaWave

From The TradersCommunity US Research Desk