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James Hyerczyk
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Natural Gas

Natural gas futures finished sharply higher last week with the rally driven by expectations of a decline in U.S. production due to regularly scheduled pipeline maintenance. Gains were capped, however, by favorable weather forecasts and a neutral U.S. government storage report.

Last week, June natural gas futures settled at $2.931, up $0.113 or +4.01%.

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Bullish Traders Focused on Pipeline Maintenance

Pipeline maintenance led to a huge day/day decrease in production on Tuesday. According to Natural Gas Intelligence (NGI), a slew of pipeline maintenance events in the Northeast resulted in a 2.4 Bcf day/day drop in production. Meanwhile, Wood Mackenzie, a natural resources research and consulting firm, said unannounced operator field maintenance also likely contributed to the decline in output.

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Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration (EIA) reported on Thursday that domestic supplies of natural gas rose by 15 billion cubic feet (Bcf) for the week ended April 23.

Total stocks now stand at 1.898 trillion cubic feet (Tcf), down 302 Bcf from a year ago and 40 Bcf below the five-year average, the government said.

Natural Gas Intelligence (NGI) reported ahead of the report, a Bloomberg survey of nine analysts produced injections estimates ranging from 6 Bcf to 19 Bcf, with a median build of 8 Bcf.

Short-Term Weather Outlook

NatGasWeather is predicting that one weather system with showers and thunderstorms will stall over Texas the next few days with highs of 70s, then exiting late this weekend. A second colder system will track through the Great Lakes and Northeast Friday-Saturday with slightly cool highs of 50s and 60s. The West will be very warm with highs of 70s to 90s, apart from the cooler and showery Northwest.

A mostly comfortable pattern will rule the U.S. Sunday – Monday with highs of 60s to 80s besides hotter 90s in Texas. However, a fresh round of cooler than normal weather systems will push into the central and northern U.S. mid-week with highs of 50s & 60s, including cooler highs of 70s into Texas and the South. Overall, swings between low and moderate demand the next 7-days.

Daily Forecast

Last week’s price action likely set the early tone for what should be a bullish summer if the heat arrives as expected. Prices could pull back over the short-run into support, but we may not see a change in trend on the move as buyers will likely welcome the corrective move so that they can enter at more favorable price levels.

I think buying the dip will be the strategy moving forward since it’s a little too early in the season to chase higher prices. With the main trend up, the safest play is buying weakness, buying strength carries a lot of risk.

Near-term bullish factors will be a more consistent decline in production, stronger power burns and an early return of hotter-than-usual temperatures.

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

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