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James Hyerczyk
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Natural Gas

Traders were monitoring Tropical Storm Cristobal ahead of the weekend, but based on the price action on Friday, it doesn’t look like they were concerned enough to take protection ahead of Monday’s opening. The fact that it was only labeled a tropical storm may have dampened the need to buy ahead of landfall. If it had been a hurricane then we probably would’ve see a strong short-covering rally.

Last week, July natural gas futures settled at $1.782, down $0.067 or -3.62%.

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US Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration (EIA) reported last week that domestic supplies of natural gas rose by 102 billion cubic feet for the week-ended May 29. That was less than the average increase of 110 billion cubic feet forecast by experts.

Total stocks now stand at 2.714 trillion cubic feet, up 762 billion cubic feet from a year ago, and 422 billion cubic feet above the five-year average, the government said.

Last year, the EIA recorded a 118 Bcf increase in storage for the similar week, while the five-year average build stands at 103 Bcf.

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Weekly Weather Outlook

Weather models are showing “a very warm pattern” into the second week of June, pushing power burns to a relatively strong 35-37 Bcf/d, according to NatGasWeather as reported by Natural Gas Intelligence. However, the June 11-17 pattern isn’t hot enough except across the Southwest and Texas as weather systems track across the northern and eastern United States, the firm said.

The June 18-21 period is now the period of greatest interest to see if the upper ridge finally can get “hot enough to intimidate,” and the latest Global Forecast System and latest European models showed a little hotter risks. “Whether this sticks and whether it trends hot enough to impress would need more data come on board, but the latest European model data did tease something finally more impressive around days 13-16 of the forecast,” NatGasWeather said.

Weekly Forecast

The heat over the past week may temporarily stall the recent run of triple-digit storage injections, Natural Gas Intelligence wrote. This could underpin prices early next week. Last week, the EIA reported its fourth report in five weeks in which the EIA reported a 100 Bcf-plus injection.

The U.S. economy continues to recover from COVID-19 shutdowns, which slashed heating power sector and industrial gas consumption by as much as 9.2 Bcf/d in mid-April. The subsequent reopening, however, has narrowed this reduction to 4.0 Bcf/d, according to EBW Analytics Group.

“As state economies reopen, gas demand could soar as seasonal trends are amplified by economic recovery,” the firm said. “At the same time, the loss of demand earlier this spring highlights the potential threat to gas demand, and gas prices, if a second wave forces renewed lockdowns later this year.”

Overall, the longer-term fundamentals are bearish, but I’m willing to concede that the combination of seasonal factors and the gradual increase in demand due to the slow re-opening of the economy could underpin prices.

I don’t see a change in trend coming, but there is room for a near-term short-covering rally.

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

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