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Natural Gas Price Break Out Despite In Line Inventory Build

By:
David Becker
Published: May 17, 2018, 17:55 UTC

Natural gas prices rose by more than 1% and closed near a 4-month high, following the EIA’s inventory report released on Thursday.  The stronger than

Natural Gas

Natural gas prices rose by more than 1% and closed near a 4-month high, following the EIA’s inventory report released on Thursday.  The stronger than expected Philly Fed index buoyed gas prices, as manufacturing draws during the sprint and summer months.  Prices closed above the April highs near 2.83. Support is seen near the former breakout level at 2.83, and then the 10-day moving average at 2.788. Momentum is neutral as the MACD (moving average convergence divergence) histogram prints in the black with a flat trajectory which reflects consolidation.

Gas Inventories Where in Line with Expectations

The EIA reported that working gas in storage was 1,538 Bcf as of Friday, May 11, 2018. This represents a net increase of 106 Bcf from the previous week. Expectations were for a 105 Bcf build. Stocks were 821 Bcf less than last year at this time and 501 Bcf below the five-year average of 2,039 Bcf. At 1,538 Bcf, total working gas is within the five-year historical range.

U.S. Philly Fed index Rose

U.S. Philly Fed index climbed 11.2 points 34.4 in May, much stronger than expected, after edging up 0.9 points to 23.2 in April. It was 35.5 last May, which was a two-year high. Gains were broadbased. The employment component increased to 30.2 from 27.1, with the workweek at 34.4 from 21.6. New orders surged to 40.6 from 18.4. Prices paid dipped to 52.6 from 56.4, though prices received rose to 36.4 from 29.8. The 6-month business conditions index fell to 38.7 from 40.7, but the employment index improved to 42.8 from 34.6, with new orders rising to 40.3 from 37.2, while prices paid slid to 63.4 from 66.8 and prices received dropped to 33.6 from 47.9. This is a pretty goldilocks report again.

Negative natural gas prices are rare

Negative natural gas prices are rare as they represent a producer paying a customer to take natural gas. Negative and near-zero pricing generally occur because produced natural gas volumes exceed available takeaway capacity. Natural gas flows out of western Canada have been facing seasonal maintenance constraints along NOVA, limiting flows out of Alberta to eastern Canada and to the U.S. Midwest. High natural gas storage inventories in western Canada combined with production growth and lower, shoulder-season demand contributed to downward pressure on spot prices at AECO, in Canada.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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