Into The Vortex – Natural Gas Traders Outlook

EIA reported natural gas storage in the U.S. last week came in less than expected at -36Bcf in storage with consensus a draw of -28Bcf. For perspective in the same week last year stocks were -55Bcf, with a five-year average -37Bcf. Natural gas continues its mostly one-way train down with ETF holders the big losers as we have traded at 2020 lows and all-time lows when adjusted for inflation. With oil prices high associated continues to flood the market as oil producers pump near all-time highs. 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 reached a record high this year.

Natural gas Storage

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: 3/21/2024 Via TradersCommunity.com
  • Release Time: Thursday 3/28/2024 10:30 p.m. ET
  • Market Expectations
  • Actual -36 Bcf Prior +7 Bcf
  • Consensus Forecast -28 Bcf
  • Cons. Range -23 Bcf to -33 Bcf
  • Last Year: -55 Bcf
  • 5 Year Average: -27 Bcf
US Natural Gas Storage Stage

Summary

Working gas in storage was 2,296 Bcf as of Friday, March 22, 2024, according to EIA estimates. This represents a net decrease of 36 Bcf from the previous week. Stocks were 430 Bcf higher than last year at this time and 669 Bcf above the five-year average of 1,627 Bcf. At 2,296 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: 2,296 Bcf
  • Storage 2023/Same Week:  1,866 Bcf
  • 5Yr Avg/Same Week: 1,627 Bcf
EIA Storage Report

Global Natural Gas Quick Overview

@Ole_S_Hansen Cocoa 😱 Mar 26, 2024
@Macrodispatch Over the past 30 days Commodities definitely been moving the needle

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Via Ole S Hansen @Ole_S_Hansen

Natural Gas Market Price Influence Factors

Bearish Factors Include

  • Economic damage and reduced natural gas demand caused by the Covid pandemic,
  • Warm U.S. winter that results in weak demand for natural gas for heating.
  • Over long spec positions
  • Freeport LNG Outage
  • 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 looks to be quite inactive. The North Atlantic Ocean has experienced the quietest months of July and August since 1941. Named storms have 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. nat-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 that are down -14.8% y/y and -2.6% below their 5-year average.
  • High power burns
  • Perception that gas supply and demand are more inelastic than ever before.
  • Over short spec positions
  • Discussion of a 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 25-Nov: 784 (est 786; prev 782)
  • Rotary Gas Rigs: 155 (est 157; prev 157)
  • Rotary Oil Rigs: 627 (est 626; prev 623)

US Oil Rigs w/w changes by key shale basins

  • Permian +3 to 348
  • Eagle Ford unchanged at 66
  • Williston unchanged at 42
  • Cana Woodford +1 to 29
  • DJ Niobrara unchanged at 20

Canada Rigs

  • Canada Rotary Drilling Rigs 14 Nov 2022
  • Canada averaged 212 active drilling rigs last week.
  • 29% were drilling for nat gas, 59% for oil, 3% for other (helium, hydrogen, geothermal, lithium, potash), 9% were moving.
  • Drilling activity by province was 74% in AB, 17% in SK, 7% in BC, and 2% in MB.
Canada Rigs via BOE
  • Drilling activity by province bounces between 71% in Alberta, 19% in Saskatchewan, 8% in BC, and 2% in Manitoba.
  • Precision Drilling holds the majority of the Canadian market share typically with 29%, Ensign Drilling with 25%, Savanna Drilling with 13%, Horizon with 6%, and Stampede Drilling with 5%.

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

It has been 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 this summer.


La Nina

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U.S. Climate Prediction Center said Thursday there is a 53% chance that La Nina conditions could persist through the summer and a 45% chance of those conditions carrying into next fall.  

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, the forecaster said. 

The phenomenon begins when the atmosphere reacts to a cooler patch of water over the Pacific Ocean.

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. We are still correcting the manic 5. We again tested and spat the 50dma tenkan to close under it but above the 61.8% after the bounce of the target support sphere of influence. This was a 10/8 move correcting a 10/8 move, meaning equilibrium. We now look at our Adam’s theory fractal rules. Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. Resistance is heavy: 3/8 and above through highs & MM +1/8 & +2/8, Kijun, 50 dma and cloud. Support is previous lows, and which was also a major break up level

Natural gas futures Weekly

Important to watch how this energy was built for shape correlation. The Cloud top broke Kijun and Tenkan with a kiss of life. Meaning that 3 was either an a i or iv– impulse in a nutshell. Prior to this move the adjunct failure of the 50dma and Tenkan opened up the retest of 3.80-3.60 last time which fueled this year’s move higher. From there we fell sharply to the Kijun, A completion of 4 (bear) or (i) of 5 (bull) which gave this move sustenance.

Notice the fractals of the move after completing the C of 4 bullish scenario played out the consolidation phase since it completed its IV (Bull Case) last year since then a series of 3 waves. For the bulls all this needs to hold for the highs to be a (iii) looking at possibilities we have the 161.8% at 7.026 if we get ‘silly’ 50dma support.

Like the larger wave on the way up it accelerated through previous highs (flat topped triangle energy) and over the resistance at 8/8 and new highs. We successfully tested that break in a pennant ABC. Previous highs (flat topped triangle energy) and 8/8 and new highs underscore the structure that fed the move and is key longer term. 

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. This week we closed right around the 50wma and tenkan in the cloud. We closed above 4/8 and bottom of the cloud offering meaningful support. Recall the instability stems from the sharp reversal off the 5 over 8/8 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. Support is 50wma, cloud and Murrey Grid.

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. A question of continuation with the 50wma as resistance and cloud as support.

  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.

Natural Gas Exports Watch

LNG

Natural gas feed to LNG facilities Sabine Pass, Cameron, Calcasieu Pass, Elba Island, Cove Point, Freeport & Corpus Christi combined for Mar 30 was 12.47 Bcf.

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  ++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

via RonH Energy

 Natural Gas Canada Import Watch

Source via RonH Energy

Natural Gas Demand Watch

Natural Gas Nuclear Power Watch

US nuclear output for Mar 29 is 82,162.1 MW. This was -1,109.0 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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Natural Gas Futures Commitment of Traders

 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 Mar 26. 2024
  • WoW change
  • +13,694 longs,
  • +11,626 shorts,
  • +2,068 net change,
  • 42.5% 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