NatGas Supported by Russian Import Phase Out, Hot Weather Forecasts

Natural gas futures are slightly better shortly before the release of the government’s weekly storage report on Thursday. Overnight, the market moved closer to a 14 year high following the European’s plans to phase out Russian imports.

Forecasts for hot weather also drove the rally as investors bet on strong demand for the fuel to cool homes and businesses. More importantly were bets placed supporting the notion that the United States wouldn’t be able to close its current storage deficit ahead of winter demand.

At 11:50 GMT, June natural gas futures are trading $8.417, up $0.002 or +0.02%. On Wednesday, the United States Natural Gas Fund ETF (UNG) settled at $28.99, up $2.20 or +8.21%.

European Union Takes Steps to Phase Out Russian Imports

The world’s largest trading bloc, the European Union (EU), has proposed a phased oil embargo on Russia and sanctions top bank and broadcasters in its toughest measures yet to punish Moscow for its war in Ukraine, according to Reuters.

The market appears to be interpreting the planned EU sanctions on oil as indicative of an increased possibility of an eventual embargo on Russian gas, advisory firm Ritterbusch and Associates said in a note.

Traders Placing Early Bets on Hot Summer

“This week’s upside price acceleration is being driven by recent weather-related production declines and next week’s expected major warmup across the nation’s midsection that appears to be conjuring up images of an early start to a hot summer,” Ritterbusch’s note said.

Reuters also reported that the Electric Reliability Council of Texas (ERCOT) on Tuesday warned of larger-than-normal demand for power due to extreme hot weather expected in the region over May 6-9.

Finally, forecasts from data provider Refinitiv showed temperatures over the next two weeks are estimated to be much hotter than usual with 107 cooling degree days (CDDs) projected compared with a 30-year average of 67 CDDs for the period.

CDDs, used to estimate demand to cool homes and businesses, measure the number of degrees a day’s average temperature is above 65 degrees Fahrenheit (18 degrees Celsius).

Energy Information Administration Weekly Storage Report

Today’s EIA weekly storage report, due to be released at 14:30 GMT, is expected to print a number that would fall below the five-year average for this time of year, keeping supplies relatively tight. This would be disappointing for those hoping for the start of a number of weeks of triple-digit injections.

According to Natural Gas Intelligence (NGI), “Major polls found estimates coalescing around a mid- to high 60s Bcf increase for the week ended April 29. That compares with a five-year average injection of 78 Bcf, though it would exceed the 53 Bcf increase posted for the same week a year earlier.”

NGI also reported, A Wall Street Journal survey found injection estimates ranging from 56 Bcf to 71 Bcf, with an average of 65 Bcf. Results of Reuters’ poll showed estimated increases of 56 Bcf to 77 Bcf, with a median increase of 68 Bcf. Bloomberg’s survey spanned 41 Bcf to 81 Bcf, landing at a median expectation for an injection of 68 Bcf.

If the projections prove accurate, U.S. stocks would remain about 17% below the five-year average.

Daily Forecast

A bigger-than-expected storage print under normal conditions would be bearish, but these are not normal conditions, it’s essentially a race with time to replenish storage before the summer cooling demand begins. Slowing down this process, however, could be low production and earlier-than-expected heat.

Another reason why we don’t expected to see any prolonged weakness is because traders have been buying the dips in anticipation of steady demand for months. This demand is coming from Europe.

For a look at all of today’s economic events, check out our economic calendar.